Potential tax code change may hit payees

According to media reports, the government is planning to significantly alter the slabs proposed in the original draft of the direct taxes code (DTC), which may cost taxpayers.



While the slabs are yet to be reworked, officials indicated that the highest one could be in the range of Rs10-15 lakh, instead of the Rs25 lakh proposed when the first draft was released.

Finance ministry officials said none of the changes proposed in the second discussion paper on DTC would lead to an increased revenue for the government. If it sticks to the slabs proposed in DTC, its revenue collections, which showed an annual growth of 24% in the last five years, would be badly hit. The government is planning to implement DTC from next April, so the new slabs will affect the tax rates next year onwards.

"The highest slab should be around Rs10-15 lakh. It will not be possible for the revenue department to give all those exemptions and still keep the slabs high. The slabs suggested in DTC-1 are exorbitantly high, considering most revenue-generating proposals in the original draft have been changed in DTC-2," an official in the finance ministry said.

The official added that the rates - 10%, 20% and 30% - will be retained but a final decision on the slabs would be taken after assessing the revenue impact of all other proposals in the DTC.

Per capita income of India, the average amount each person earns in the country, is Rs44,345 or Rs3,695 a month. If the government fixed the highest bracket at Rs25 lakh, out of 35 million taxpayers, only those earning more than Rs2 lakh a month were required to pay tax at 30%.