In a move that could result in some relief to a section of taxpayers, the task force on the new Direct Tax Code (DTC) is likely to suggest new tax slabs and changes in the current income tax rates, sources said.

"There is a huge difference between tax slabs of 5% and 20%. The problem is a jump straight from 5% to 20%," said a source privy to the developments.

The task force, which has a mandate to draft a new direct tax legislation in keeping with the economic needs and international best practices, will be submitting its report by the end of May, coinciding with the formation of the new government.

"The spade work has been done. Now the proposals are being firmed up," said the source.

The DTC panel is looking at having more slabs than the current three – 5%, 20% and 30%. "The task force might look at changing the number of tax slabs. It might look at different rates," said the source, adding that prior to 1997 there were 4-5 tax slabs.

To move away from the existing tax slabs, the panel is studying all the rates and their revenue implications. "The idea is to go for changes without causing any major impact on tax revenues. If there is a shortage, we have to make it up somewhere else," sources said.

While there may not be any change in 5% and 30% slabs, 20% category may undergo a change. "The panel is discussing whether to have one or two tax slabs in between 5% and 30%. It is also deliberating when the 30% tax rate will kick in," sources said.

Right now, an annual income above Rs 10 lakh is taxed at 30%, while income of Rs 5-10 lakh attracts 20% and up to Rs 2.5 lakh 5% income tax. There is no tax for individuals with income less than Rs 2.5 lakh per annum.

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The committee is likely to maintain the lowest slab of 5%. "Doing away with 5% tax slab may not be an option as it caters to the taxpayers having low income," said sources.

The new tax code is focusing on simplifying the Income Tax Act, 1961, and also find ways to reduce litigations. "Litigations is one area the task force had to address. There is a huge number of litigations going on," according to sources.

The terms of reference of the task force included drafting an appropriate direct tax legislation, keeping in view the current economic needs, systems prevalent in other countries as well as international best practices. The task force was set up in November, 2017 on the direction of Prime Minister Narendra Modi, who had expressed a need to redraft the Income Tax Act, which was prepared over 50 years ago. In November 2018, the finance ministry appointed Akhilesh Ranjan, member (legislation), Central Board of Direct Taxes as head of the task force. Earlier, the convenor of the panel Arbind Modi had retired on September 30, 2018, leaving the report in limbo. Recently, the ministry gave the task force an extension of three months until May 31 to submit its report.

Led by Ranjan, the six-member task force includes G C Srivastava, former income tax official, Girish Ahuja, chartered accountant, Rajiv Memani, chairman and regional managing partner at EY, Mukesh Patel, a tax advocate, and Mansi Kedia, a consultant with the Indian Council for Research on International Economic Relations.