Increase in Tax collections - How does it affect you

The existing taxpayers are paying more taxes this year, thanks to higher incomes from a booming economy and improved compliance with tax laws. Also contributing to the direct taxes are the addition in the number of new tax payers.

In April-October 2007, personal income tax collections of the Centre grew 39.39 per cent at Rs 49,890 crore, significantly higher than Rs 35,805 crore collected in the same period last year. The buoyancy in personal income tax collections can be attributed to both deepening and widening of the tax base.

Tax experts also emphasise that while salary levels have seen significant rises, avenues for financial savings remain limited at around Rs 1 lakh a year, thus bringing more income to taxation.

At the same time, the number of new tax payers has seen a steady increase. In 2004-05, there were 15.97 lakh new assesses and the number went up by 19 lakh in 2005-06 and 21.28 lakh in 2006-07.

The direct tax base as on end-March 2007 stood at 3.19 crore assessees, with majority of them coming under the category of ‘individuals’. The corporate tax base has been more or less stagnant in the recent years and comprised about 1 per cent of the total direct tax base.

Despite this, corporate tax revenues continue to be buoyant, with collections during April-October this year recording 45.71 per cent growth at Rs 78,785 crore (Rs 54,072 crore). The overall direct tax collections for the period under review grew over 40 per cent to Rs 1,28,864 crore, up from Rs 90,180 crore in April-October last year.

Given the huge backdrop in the collection of Taxes by the government, there are already talks that the tax rates might be reduced etc. Here are some of the options that the Finance has in front of him for the next year that will be presented in teh budget in Feb. Also, this could be a last budget before the next general elections and hence there is a possibility that the Finance minister will give more sops than the usual. Some of the sops that could be expected are

1. Reduction in the Tax rates for the different slabs
2. Alteration in the tax slabs
3. Increase in the Standard deduction
4. Reduction in the surcharge or abolition of the same.