News | Tax

Rejig in income tax slabs likely to help govt save Rs55,000 cr: Income Tax Task Force Report

According to a news report in The Economic Times (ET), a rejig in income tax slabs and a change in capital gains tax as per the recommendations of the Income Tax task force report may boost the government's revenues by over Rs 55,000 crore. The task force report is being studied by the govt & if implemented it could rejig the tax slabs completely.
 
The task force report has recommended the following tax income-tax slabs:
 
10% for earning up to Rs 10 lakh
20% for incomes between Rs 10 lakh and Rs 20 lakh
30% for incomes between Rs 20 lakh and Rs 2 crore
35% for earning more than Rs 2 crore
 
The report has not suggested any change to current income tax exemption limit. 
 
The current IT slabs are 5 percent plus 4 percent cess for people earning between Rs 2.5 lakh and Rs 5 lakh, 20 percent plus 4 percent cess for incomes of more than Rs 5 lakh up to Rs 10 lakh, and 30 percent plus 4 percent cess for those earning over Rs 10 lakh. 
 
The task force report has recommended eliminating the surcharge that ranges between 15 percent to 37 percent. It has also proposed limiting deductions available to individuals to provident fund, medical and education expenses, housing loan and charity to bring efficiency gains. 
 
At the moment, individuals can take advantage of a series of deductions in lieu of interest on savings in fixed deposits, equity-linked savings schemes and insurance.
 
The task force has suggested eliminating deduction available in lieu of interest and
rentals. 
 
“There could be an overall gain in revenues if the recommendations are implemented in full,” one of the persons familiar with the report said to ET. The government is studying the report of the task force on direct taxes, and it is expected that some its recommendations may find place in the upcoming budget.  
 
The report also suggests removing prosecution and reopening of assessment for those who declare and pay higher income tax for a past period of up to six years with interest and 50 percent penalty.
 
Another person familiar with the report said “It has been seen that taxpayers do not pay higher tax for a past period for fear of reopening of assessment and prosecution”.
 
On the capital gains tax regime, the task force has suggested three categories: equity, non-equity financial assets, and all others including property. There is a proposal for Indexation benefits to be restricted to non-equity financial assets and all other assets categories. 
 
A long-term capital gains (LTCG) tax of 10 percent is proposed for gains on sale of equity assets held for more than 12 months. For equities held for a shorter period, 15 percent short-term capital gains tax has been proposed. 
 
For non-equity financial assets held for over 24 months, a LTCG of 20 percent with indexation has been proposed for gains on sale. In case of all other assets, a 20 percent tax with indexation on gains on sale post holding a period of 36 months has been proposed. 
 
At the moment, equities, preference shares, equity-based mutual funds, zero coupon bonds, Unit Trust of India units are considered long-term assets if held for a period of over 12 months. Debt-oriented mutual funds, jewellery held for a period of over 36 months are treated as long-term. Real estate held for over 24 months is treated as a long-term asset. 
 
Earlier on 29th October, CNBC Awaaz had reported that the Prime Minister’s Office, in consultation with the Finance Ministry’s Revenue Department and NITI Aayog, are reviewing the existing structure of the long term capital gains (LTCG) tax. 
 
The task force has not suggested discontinuation of securities transaction tax levied on equities. It has suggested changes to taxation of employee stock option plans to incentivise startups, as per the ET report. 
 
The report has suggested 25 percent tax for foreign companies and a branch profit tax rate of 15 percent if these are repatriated. It has recommended doing away with dividend distribution tax, and instead tax dividends in the hands of recipients. It has also suggested widening of presumption taxation to increase tax base. 
 
The report has urged for public rulings. In August 2019, the task force, with Central Board of Direct Taxes member Akhilesh Ranjan as convenor and chief economic advisor K Subramanian as member submitted its report.

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