Decoded: Proposed tax slabs and their implications on your income

india

Updated: Jun 23, 2020 06:23 IST

If the major changes proposed to the Income Tax Act, which dates back 58 years, 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.

The task force on the Direct Tax Code was constituted in November 2017 to review the existing income-tax legislation and to draft a new direct tax law in accordance with economic needs of the country. The report was submitted to Finance Minister Nirmala Sitharaman on August 19, but it has not been made public yet.

Watch | Explained: How new tax proposals will bring cheer to the middle class

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

*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.