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Income tax slabs set to go up
BS Economy Bureau in New Delhi |
June 21, 2004 08:30 IST
The government is set to provide relief in personal income taxes by increasing the tax slabs while retaining the existing rates. The 8 per cent return on small savings is also likely to continue.
A senior finance ministry source said: "At present, the income tax slabs are low. How long can you just keep promising relief?"
The slabs were last raised marginally from Rs 40,000 to Rs 50,000 at the lowest income tax rate of 10 per cent in 1998-1999 by Yashwant Sinha.
PC's sweet pill |
Tax slab (Rs) | Number of
assessees
(in Rs per annum) | I-T rate
(in per cent) |
50-60,000 | 40 lakh | 10 |
60-100,000 | 67 lakh | 20 |
100-150,000 | 51 lakh | 20 |
150-300,000 | 37.5 lakh | 30 |
300-500,000 | 365,000 | 30 |
500,000-10 lakh | 320,000 | 30 |
Over 10 lakh | 71,000 | 30 |
(For 2002-03) |
It was P Chidambaram as finance minister, who in his dream Budget of 1997-98, cut income tax rates from 15 per cent, 30 per cent and 40 per cent to 10 per cent (for annual income of Rs 40,000 to Rs 60,000), 20 per cent (Rs 60,000 to Rs 150,000) and 30 per cent (income over Rs 150,000), respectively.
The finance ministry sources said the present tax rates were moderate and stable and did not require any changes. They also said there were no particular demands from any quarter to change the existing rates.
The need to increase the slabs is rooted in the logic that the highest tax rate kicks in at a very low multiple of per capita income. In other words, the 30 per cent rate is applicable to annual income over Rs 150,000 (5 x per capita income of Rs 29,250).
The options that could be considered by the finance ministry include increasing the threshold income of Rs 50,000 at which the lowest 10 per cent rate is applicable. Simultaneously, the ministry could also consider lifting the annual income bar from the present Rs 150,000 for levying income tax of 30 per cent.
The sources said no significant savings were expected to accrue with a token cut in small savings rates. Moreover, with inflation ruling at over 5 per cent now, the real rate of return on small savings is less than 3 per cent.
In the interim Budget for 2004-05, Jaswant Singh had promised to revisit the issue of revising the standard deduction for individual assessees.
In his previous Budget, he had raised the deduction for annual income of up to Rs 5 lakh (Rs 500,000) to 40 per cent of the salary or Rs 30,000, whichever was less. For assessees with annual income of over Rs 5 lakh, he had kept it at Rs 20,000.