Your income tax rate may fall from 20% to 10% soon

The Centre is mulling lowering personal income tax rates before Diwali in order to improve spending during the festive season. Centre's plan is to give at least a 5 per cent benefit to every taxpayer, according to a government source.

The move comes just weeks after they slashed corporate tax rates to boost investments.

According to an official, one of the options is to slash the income tax rate to 10 per cent from the current 20 per cent for individuals with taxable income between Rs 5 lakh and Rs 10 lakh. There are also options to remove cess, surcharge and several tax exemptions and reduce the tax rate of the highest slab from 30 per cent to 25 per cent, the report added.

Currently, income up to Rs 2.5 lakh is tax-free while taxable income between Rs 3 lakh and Rs 5 lakh attracts a 5 per cent rate and a 20 per cent tax is levied on those earning between Rs 5 lakh and Rs 10 lakh.

For those with Rs 10 lakh and above of taxable income, a 30 per cent tax is charged.

The rationalisation of personal income tax rates is expected to increase the disposable incomes, especially among the middle class, and hopefully drive consumption and, therefore, growth, at a time when the economy is facing a slowdown.

The move, if implemented, will be in line with the proposals submitted by Akhilesh Ranjan committee on the new Direct Tax Code (DTC). Reportedly, the new DTC, which seeks to replace the existing Income Tax Act, has proposed new tax slabs in its report submitted to the Centre on August 19.

The panel proposed four tax brackets by introducing a new slab of 35 per cent for those earning an annual income of Rs 2 crore and above.

The Akhilesh Ranjan panel has suggested increasing the threshold for exemption from income tax to Rs 5 lakh a year from the current Rs 2.5 lakh. In addition, it has proposed lower rates of 10 per cent for annual income between Rs 5 lakh and Rs 10 lakh, 20 per cent for income between Rs 10 lakh and Rs 20 lakh and 30 per cent for income of Rs 20 lakh to Rs 2 crore.

India’s economic growth slowed to an over six-year low at 5 per cent in the June quarter, the fifth straight quarterly decline in growth. The government is leaving no stone unturned to fight the impending economic slump by easing tax norms and increasing liquidity to boost investment and encourage consumption.

(With inputs from The Week)