The task force's recommendations aim to make far-reaching changes in the Income Tax Act-1961.
A Direct Tax Code task force formed by the government has proposed a new taxation system that will bring about dramatic changes to the age-old Income Tax Act-1961, providing concessions to tax-payers and enhancing their spending power amid an alarming economic slump.
According to news agency IANS, people earning between Rs 5 lakh and Rs 10 lakh per year will have to pay just 10 per cent income tax if the recommendations of the high-profile task force headed by Central Board of Direct Taxation (CBDT) member Akhilesh Ranjan are accepted. Another radical change reportedly proposed is the lowering of personal income tax for those earning between Rs 10 lakh and Rs 20 lakh per year to 20 per cent.
People are currently taxed at 5 per cent for an annual income between Rs 2.5 and Rs 5 lakh, 20 per cent for an annual income between Rs 5 lakh and Rs 10 lakh, and 30 per cent for earnings of over Rs 10 lakh per year.
IANS quoted sources as saying that the task force has recommended five tax brackets of 5 per cent, 10 per cent, 20 per cent, 30 per cent and 35 per cent against the prevailing structure of 5 per cent, 20 per cent and 30 per cent.
The new tax system also proposes to provide those earning an annual income of up to Rs 5 lakh a rebate on taxes paid, in keeping with Union Minister Piyush Goyal's announcement in the 2019 interim budget. In other words, these individuals will be charged zero tax.
However, those earning between Rs 20 lakh and Rs 2 crore have little to look forward to in the proposed system, with IANS quoting sources as saying that they will continue to shell out income tax at the previous rate of 30 per cent. The panel has also recommended the introduction of a new tax bracket of 35 per cent for the super-rich - or those earning over Rs 2 crore a year - and doing away with surcharges.
The report, which is yet to be made public despite being submitted to Finance Minister Nirmala Sitharaman on August 19, intends to rationalise tax slabs in a bid to revive the economy by enhancing the people's spending power and boosting consumption.
The panel led by Akhilesh Ranjan has also recommended scrapping of surcharges, dividend distribution tax and minimum alternate tax. While the dividend distribution tax is imposed on companies in accordance with the divided paid to their investors, the minimum alternate tax is a provision designed to prevent companies from taking advantage of loopholes in the taxation system.
(With inputs from IANS)