If the government decides to fully implement the task force report on direct tax, earn more than Rs 55,000 crore. The report recommended a replacement of the existing income tax slabs and the capital gains tax system. The government has started considering the task force report and some of its suggestions may be included in the upcoming Budget.
Direct tax code: 10% tax on income up to Rs 10 lakh
The task force report has not yet been made public. A source said that it proposes not to prosecute or reopen assessments against people who pay higher income tax with interest and 50% penalty for the previous period up to six years.
The report recommends 10% tax for people with income up to Rs 10 lakh, 20% for an income of Rs 10-20 lakh, 30% for those with income between Rs 20 lakh and Rs 2 crore and, for income above Rs 2 crore, a personal income tax rate of 35%.
Direct tax code: No change in exemption limit
However, no change in the existing income tax exemption limit is suggested. The task force has stressed the need to remove the surcharge.
The report recommends limiting the deduction available on the provident fund, medical and education expenses, housing loans and charity.
Report submitted in August
Akhilesh Ranjan, a member of the Central Board of Direct Taxes, was made the convenor of the task force whereas Chief Economic Advisor Krishnamurthy Subramanian was made a member. The report was submitted on 19 August.
The report recommended major changes in the tax structure that aim to provide relief to taxpayers and increase tax collection. The task force for capital gains tax suggested adopting a three-point system: equity, non-equity financial assets and all others including property.
The indexation is proposed to be limited to non-equity financial assets and all other asset categories.
10% tax offer on LTCG
The LTCG of 10% is proposed for gains on the sale of equity assets held over 12 months for equities.
15% tax rate suggested on STCG
A tax rate of 15% has been suggested for short-term capital gains. Currently, equities, preference shares, equity-based mutual funds, zero-coupon bonds, unit trusts of India units are considered long-term assets if held for more than 12 months.
The task force has not suggested the abolition of securities transaction tax on equities. It has stated the need to change the taxation of employee stock option plans to incentivize startups.