New Income Tax Slabs: A government-appointed task force earlier this month submitted its report to the Finance Ministry on new Direct Tax Code, which seeks to replace the existing Income Tax Act. Though its details are yet to be made public, news agency IANS, citing sources, has reported that the task force has proposed many changes to the Income Tax Act, which dates back 58 years.
People earning between Rs 5 lakh and 10 lakh per year may have to pay 10% income tax if the recommendations of a high-level tax force set up by the government are accepted.
The task force has not recommended raising of the income tax exemption limit from the current level of Rs 2.5 lakh but has suggested five tax brackets of 5%, 10%, 20%, 30%, and 35%, the report said. Currently, there are three tax slabs: 5%, 20%, and 30%.
The government panel on Direct Tax Code has proposed radical revisions to the personal income tax rates and slabs. It has suggested zero tax levy on annual income between Rs 0-2.5 lakh, 10 percent on income between Rs 5 -10 lakh, and 20 percent on income of Rs 10 to 20 lakh.
The government-constituted task force, led by Central Board of Direct Taxation (CBDT) member Akhilesh Ranjan, had submitted its report to Finance Minister Nirmala Sitharaman on August 19, but it has not been made public yet. There is also no clarity on whether the government has set any timeline to adopt the recommendations.
The panel, says the report, has recommended those earning above ₹20 lakh and till ₹2 crore to remain at the current level of 30%. It has also proposed introducing a new 35% tax bracket of 35% for those earning above ₹2 crore in a year while doing away with the surcharge.
Currently, Personal Income has taxed at 5% for income between Rs 2.5 and Rs 5 lakh, at 20% for income between Rs 5 lakh and Rs 10 lakh, and 30% for an income of over Rs 10 lakh. But those earning up to Rs 5 lakh annually get a rebate of up to Rs 12,500 on the taxes paid, effectively making an income of up to Rs 5 lakh tax-free.
As announced in the interim budget of 2019, there will be a rebate on taxes paid on annual income up to Rs 5 lakh. This effectively means an annual income of up to Rs 5 lakh will attract zero tax.
Income tax slabs as recommended by the task force, as reported by IANS:
- Up to Rs 2.5 lakh – Exempted
- Up to Rs 5 lakh – 5% (rebate up to Rs 12,500)
- Rs 5 lakh to Rs 10 lakh – 10%
- Rs 10 lakh to Rs 20 lakh – 20%
- Rs 20 lakh to Rs 2 crore – 30%
- Rs 2 crore and above – 35%
Current Income Tax Slabs for individuals below the age of 60
- Up to Rs 2,50,000 – Nil
- Rs 2,50,000 to Rs 5,00,000 – 5%
- Rs 5,00,000 to Rs 10,00,000 – 20%
- Above Rs 10,00,000 – 30%
The rationalization in tax slabs has been proposed to boost consumption and revive the economy by putting more money in the pockets of the middle-income group. The task force was formed to made recommendations to replace the 58-year-old Income Tax Act. It is aimed at simplifying income tax provisions and improving tax certainty.