How the proposed new Direct Tax Code could cut your income tax
Source：The economic times
From：Taiwan Trade Centre, Kolkata
When the corporate tax rate was reduced to 25% last month, it was termed as an early Diwali for the corporate sector. Now, taxpayers are hoping the government will gift them a similar tax relief. According to former Niti Aayog Chairman Arvind Panagariya, “there is a strong case for a similar reform of personal income tax”.
The Akhilesh Ranjan taskforce, set up to suggest an overhaul of the Income Tax Act, has also recommended sweeping changes in the tax slabs. It submitted its report on the new Direct Taxes Code to the government in August. However, the report has not been made public.
According to newsreports, the taskforce has retained the basic exemption level at Rs 2.5 lakh for general income taxpayers. For senior citizens (above 60 years) the basic exemption stays at Rs 3 lakh and for very senior citizens (above 80 years) it stays at Rs 5 lakh. The big change is the widening of the income slabs. The 10% tax slab extends right up to Rs 10 lakh, which will bring a significant relief to a large chunk of taxpayers. According to the Central Board of Direct Taxes (CBDT), more than 27% of the 5.52 crore individual taxpayers who filed returns for 2017-18 had an income between Rs 5 lakh and Rs 10 lakh. If the recommendations of the task force are implemented, these 1.47 crore taxpayers would move from the 20% slab to the 10% slab.
Currently, there is a 4% cess on total tax and full tax rebate for incomes up to Rs 5 lakh a year. The new DTC has reportedly recommended scrapping of the surcharges but retained the tax rebate.
The impact will not be very significant for low income taxpayers. Middle income earners with taxable income of up to Rs 5-6 lakh will not see a major change in their tax liability under the new slabs proposed by the DTC panel. However, they can escape the tax net by availing deductions that will take their net taxable income below the Rs 5 lakh tax-free threshold. The taskforce has retained the full tax rebate offered under Section 87A to taxpayers earning up to Rs 5 lakh a year.