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Big tax cuts may be coming for middle class in next Budget

The government is mulling a restructuring of personal income tax rates to encourage the middle class to spend more in its bid to boost consumption. The finance ministry is currently holding discussions to present concrete proposals in next year's Union Budget.

Responding to a question at an event in Delhi recently, Finance Minister Nirmala Sitharaman also said that the government was looking at myriad suggestions and the relaxation on personal income tax was one of them before it presents the Union Budget 2020 in February next year.

Those earning up to Rs 5 lakh don't have to pay any tax on their incomes at present. However, people earning more than that may have more disposable income at their discretion after the government revamps the slab system.

The government has the option to look at income tax slabs suggested in the draft direct tax code readied by Akhilesh Ranjan, former member of the central board of direct taxes (CBDT). The report has not been released yet. However, it had suggested changes in the personal income tax slabs to provide benefit to middle and upper-middle-class Indians, according to a report in the Livemint.

Individuals earning between Rs 2.5-Rs 10 lakh may have to pay income tax at the rate of 10% while those making between Rs 10-20 lakh are likely to be taxed at 20%.

Lastly, the direct tax report has also recommended a 30 per cent income tax slab for taxpayers earning between Rs 20 lakh to Rs 2 crore per year and a new tax rate of 35% (without surcharges) for individuals earning over Rs 2 crore per annum.

Currently, those earning up to Rs 2.5 lakh per year are exempted from paying income tax while individuals earning between Rs 2.5-5 lakh attract a 5% tax rate and those in the income group of Rs 5-10 lakh are taxed at 20%. Individuals earning above Rs 10 lakh have to pay tax at the rate of 30%. Those in the income bracket of Rs 1 crore, Rs 2 crore and Rs 5 crore come under a three-layered surcharge.

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