New Delhi: Just days after Finance Minister Nirmala Sitharaman announced a slew of reforms to boost the supply-side of the economy which included liberalizing policies to attract FDI and an infusion of surplus funds from the Reserve Bank of India, measures are now being taken to improve the demand-side as well.
As a first step, a government constituted Direct Tax Code task force headed by CBDT member Akilesh Ranjan is proposing sweeping changes to the Income Tax Act, which dates back 58 years.
People earning between Rs 5 lakh and Rs 10 lakh per year may have to pay 10 per cent income tax, if the recommendations of this high-level tax force are accepted.
The radical changes in personal income tax slabs include include lowering the personal income tax for those earning between Rs 10 to Rs 20 lakh per year to 20 per cent.
Currently, personal income is taxed at 5 per cent for income between Rs 2.5 and Rs 5 lakh, at 20 per cent for income between Rs 5 lakh and Rs 10 lakh, and 30 per cent for an income of over Rs 10 lakh.
Sources close to developments have revealed 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.
Those earning an annual income up to Rs 5 lakh, however, will get a rebate on the taxes paid, as was announced in the interim budget of 2019 by interim Finance Minister Piyush Goyal. This effectively means that those with an income of up to Rs 5 lakh will be charged zero tax.
The report was submitted to Finance Minister Nirmala Sitharaman on August 19, but it has not been made public yet. According to sources, the panel has recommended that income tax for those earning above Rs 20 lakh and till Rs 2 crore, continue to remain at the previous rate of 30 per cent.
It has also proposed introducing a new top tax bracket of 35 per cent for the super-rich, that is those earning above Rs 2 crore in a year, and doing away with the surcharge.
The rationalisation 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 panel has also recommended removal of dividend distribution tax and scrapping minimum alternate tax.
Further, it wants the government to avoid levying surcharges.
The slowdown of the economy played a seminal role in triggering this. The Indian economy hit a five-year-low of 6.8 per cent in FY19. With 5.8 per cent, the economy hit the lowest growth rate in 20 quarters in the January-March quarter. The Monetary Policy Committee (MPC), the Reserve
Bank of India's (RBI) body for fixing interest rates, had also lowered its growth forecast by 10 basis points in June.
The lay-offs by companies dealing with basic commodities, automobiles sector and services – Parle-G, HSBC bank, Mahindra and Mahindra to name a few—indicate that these gures were not merely on paper. They are disturbingly real.
(With inputs from IANS)