Taxpayers can look forward to a substantial reduction in their tax liability when the direct taxes code, which will replace the 50-year-old Income Tax Act, comes into effect from the next fiscal. We are in the process of reducing the rate of tax and the Direct Taxes Code (DTC) will be a good example in that direction, Central Board of Direct Taxes (CBDT) chairman S S N Moorthy said at an Assocham tax conference.

The first draft of the direct taxes code had proposed substantial widening of the income tax slabs, but they were only illustrative. The first draft had suggested a 10% tax on income of Rs 1.6 lakh-Rs 10 lakh, 20% on income of Rs 10 lakh-25 lakh and 30% beyond Rs 25 lakh in a year.

In fact, the finance ministry did not mention these slabs or suggest new ones in the revised draft as it did not want to give the impression of the suggested rates being a firm proposal. However, it said the rates proposed in the first draft could be calibrated. The CBDT has confirmed that the rate revision exercise is already in the works.

At present, annual income of Rs 1.6 lakh- Rs 5 lakh attracts 10 % income tax, Rs 5 lakh- Rs 8 lakh attracts 20% and over Rs 8 lakh faces 30% tax. Mr Moorthy said rates in India will be almost in line with international standards.

We are in the process whereby we have to be taxpayer friendly, we have to be in tune with international standards, Moorthy said, but added that the government would take measures so that the flight of revenue from India can be checked. The direct taxes code bill is likely to be introduced in the current session of Parliament to replace the archaic I-T Act from April 1, 2011.

Mr Moorthy further said that direct tax collections of Rs 4.3 lakh crore for the current fiscal are on track. The target for the current year is about Rs 4.30 lakh crore...We are growing at the rate of 15%, he added.