The government is considering rationalising personal income tax rates to boost disposable income and give a fillip to consumer demand.
According to a Hindustan Times report, government officials are going over multiple options in order to simplify income-tax laws and rationalise tax rates. One of the options is to introduce a 10 per cent slab for people having taxable income between Rs 5 lakh and Rs 10 lakh. Currently, this slab attracts a 20 per cent tax rate. There are also options to remove cess, surcharge and several tax exemptions and reduce tax rate of the highest slab from 30 per cent to 25 per cent, the report said.
"Depending on the impact the decision could have on revenue, various scenarios are being considered. But the idea is to give at least a 5 percentage point benefit to every taxpayer," the report quoted government officials as saying.
If the government goes with the idea of a 10 per cent slab for people having taxable income between Rs 5 lakh and Rs 10 lakh, it'd be in line with recommendations of the task force on the Direct Tax Code (DTC), which submitted its report on August 19.
As Business Standard reported last month, the panel has suggested an overhaul of personal income tax (I-T) slabs, to increase disposable income. The draft legislation has 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 panel has also suggested the increase in the threshold for exemption from income tax to Rs 5 lakh a year from the current Rs 2.5 lakh.
The panel 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. For income of Rs 20 lakh to Rs 2 crore, the suggested rate is 30 per cent.
Currently, personal income is taxed at 5 per cent for income between Rs 2.5 lakh to 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 above Rs 10 lakh.
Quoting experts, the Hindustan Times report said the government's move may come ahead of Diwali "which will create demand instantly and boost consumption and therefore growth".
Notably, the government has already slashed corporation tax rates to boost investment and sentiment.
Finance Minister Nirmala Sitharaman, last month, announced a corporation tax rate cut to 22 per cent for companies, which becomes 25.17 per cent after accounting for cess and surcharge, against the current rate of 34.94 per cent. However, the reduced rate will apply only to those companies not availing exemptions, and others could opt for the reduced rate once the sunset clauses on the exemptions end. The rate of minimum alternate tax was also cut from 18.5 per cent to 15 per cent.