The task force on the new Direct Tax Code which is making a New Income Tax Act has finally proposed new income tax slabs and the report has been submitted to the finance minister.
If the proposals are accepted by the government, taxpayers earning between Rs 5 lakh and Rs10 lakh a year are in for a bonanza with a task force suggesting halving the rate for them.
Here is all you need to know about the new proposals and their implications.
The proposed slabs
- The first income tax slab of income up to Rs 2.5 lakh a year remains unchanged. It attracts zero tax.
- The second slab (Rs 2.5 lakh to Rs 5 lakh) attracts 5% tax. The task force has proposed expanding this slab to include incomes between Rs 2.5 lakh to Rs 10 lakh and have a 10% tax rate, while retaining the available full tax rebate for those earning up to Rs 5 lakh.
- The task force has proposed a third slab (Rs 10 lakh to Rs 20 lakh ) that will attract a tax of 20%.
- The panel has proposed a fourth tax slab of Rs 20 lakh to Rs 2 crore that will attract a tax rate of 30% .
- The proposed fifth slab, Rs 2 crore and above, will attract a rate of 35%.
What this means to a common tax-payer
- People having income up to Rs 5 lakh will have to pay zero tax.
- Tax will be charged for income between Rs 5 lakh and Rs 10 lakh at 10% and an individual can save up to about Rs 37,500 a year (at the higher end) under the proposed regime
- The proposed third slab (Rs 10 lakh to Rs 20 lakh ) is expected to give a benefit of about Rs 1 lakh to the taxpayer. Taxpayers in this slab currently pay 30% (the current slab is Rs 10 lakh and above).
- If the proposals are is accepted, a person earning Rs 2 crore will save around Rs 8.5 lakh.
- Final tax rates will depend on whether cess and surcharges will be imposed or not
- The panel has also recommended removal of dividend distribution tax and scrapping minimum alternate tax.