Everyone seems agreed that not only is the proposed new Direct Taxes Code very smart in terms of coming to terms with complex business practices, but also good in terms of the simple matter of how much you and I will pay as taxes. But are the proposed changes in personal tax slabs that good? Or can they be reconsidered?
The re-jig of the tax slabs in the Code puts a person with an annual income of Rs 1,60,001, the annual income at which income tax rates start applying, and one earning Rs 10 lakh, the end point of the first tax slab, in the same tax bracket of 10%. This means, a person earning Rs 13,300 per month and one earning Rs 83,300 every month face the same tax rate.
In the current scenario, people earning between Rs 1,60,001 and Rs 3 lakh annually attract a 10% income tax on their income; those earning between Rs 3 lakh and Rs 5 lakh pay 20% income tax and those with annual earnings of over Rs 5 lakh pay 30% of it as income tax.
The Central Board of Direct Taxes is clear in its philosophy?lower tax rates promotes voluntary compliance and discourages evasion. With the bulk of income tax evasion committed by people earning Rs 4 lakh or more annually, the department feels that it makes sense to charm them into the tax net with a 10% rate.
But consider this: Official data reveals that of the 3.31 crore non corporate tax assessees in 2007-08, only 0.66% or 2.18 lakh people earned over Rs 10 lakh annually. The bulk or 86.81% of the tax assessees earned less than Rs 2 lakh every year while 12.5% earned between Rs 2 lakh and Rs 10 lakh every year. This data should give pause to the Code?s re-jig.
This is not all. The Code also plans to scrap deductions on housing loans and tax withdrawals from popular saving instruments like the Public Provident Fund?moves that will further impact this vast majority of taxpayers.
Fortunately, these are just proposals. The draft Code is open for suggestions from the public for the next three months and if it is tabled in Parliament in the Winter Session, it can be debated and scrutinised for one and a half years. Hopefully that will be enough time to think on some of these issues.
surabhi.prasad@expressindia.com