Personal income tax payers may expect major relief  whenever direct taxes code bill is approved by Parliament.

At a press conference today, Finance Minister P Chidambaram today said the government would abide by Parliament's standing committee recommendations on Direct Taxes Code (DTC) when the final version of the bill is tabled in Parliament.

Now, the Parliamentary panel, chaired by former Finance Minister Yashwant Sinha, wanted DTC to increase income tax exemption limit to Rs 3 lakh a year against Rs 2 lakh proposed by the bill. Currently, as well the exemption stands at Rs 2 lakh.

The committee further recommended a 10% income tax rate to kick in for annual income of over Rs 3 lakh and up to Rs 10 lakh.The DTC bill proposed this rate to be imposed on a slab of Rs 2-5 lakh. Currently, this rate is imposed on Rs 2-5 lakh slab.
 
Standing Committee Annual income of Rs 3 lakh    Annual income above Rs 3 lakh and up to Rs 10 lakh Annual income above Rs 10 lakh and up to Rs 20 lakh    Annual income above Rs 20 lakh

The panel also suggested that 20% income tax rate be paid by those earning Rs 10-20 lakh a year. This slab was proposed to be Rs 5-10 lakh in the Bill. Currently, income tax rate of 20% is also imposed on the income of Rs 5-10 lakh a year.

The committee wanted the government to impose a peak rate of 30% on annual income above Rs 20 lakh, as against above Rs 10 lakh sought in the Bill. At present, the this rate is imposed on above Rs 10 lakh a year.

The committee also suggested substantial changes in tax exemptions given to long-term savings, medical insurance and social security contributions. It wanted the government to increase long-term savings limit for the purpose of exemption from income-tax to Rs 1.5 lakh from Rs one lakh. Besides, it recommended that contribution to social security such as pension be exempted up to Rs 1.5 lakh a year; medical insurance up to Rs one lakh; up to Rs 50,000 medical insurance for dependent parents; Rs 50,000 for professional studies and education be exempted from income tax.

The panel did not suggest any changes in the corporate tax rates imposed at 30%.

However, the finance minister did not specify the probable date of DTC, which will replace the archaic Income Tax Act of 1961, coming into effect. Originally, DTC was scheduled to be introduced from April one, 2012. But,  the standing committee submitted its report to Parliament only in March, 2012.

Now, the government will table the revised DTC bill in Parliament.