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Budget likely to retain tax slabs
February, 03rd 2012

The Budget for 2012-13 is unlikely to tinker with the rates or widen the slabs for both direct as well as indirect taxes, despite chambers seeking more money in the hands of people to prop demand. Economists have also demanded a rise in indirect tax rates to boost government finances.

A finance ministry official said the government needed to boost its revenue collections immediately and it would be difficult to widen personal income tax slabs further. The last Budget had tried to bring tax slabs closer to those proposed in the Direct Taxes Code (DTC) and there is not much scope for any tinkering this time, he said.

The DTC Bill, currently with a Parliament standing committee, proposes to tax annual income over Rs 2 lakh up to Rs 5 lakh at 10 per cent, more than Rs 5 lakh up to Rs 10 lakh at 20 per cent and income above Rs 10 lakh at 30 per cent a year. Currently, income over Rs 1.80 lakh up to Rs 5 lakh attracts 10 per cent income tax, over Rs 5 lakh up to Rs 8 lakh is taxed at 20 per cent and income above Rs 8 lakh is taxed at 30 per cent.

Finance ministry officials said there was scope for raising the tax exemption limit, which currently stands at Rs 1.80 lakh for men and Rs 1.90 lakh for women. The DTC Bill seeks to increase this limit to Rs 2 lakh a year for both the categories. Officials said the corporate tax rate may also be kept intact at 30 per cent (exclusive of cess and surcharge).

On the indirect tax front, officials said the excise duty and service tax rates may also be retained at the current level of 10 per cent. The ministry felt any rise in the rate could hurt the industry and raise inflation. The peak customs duty rate is also unlikely to be altered from the current 10 per cent, owing to fears of revenue loss and its impact on the domestic industry. However, specific proposals on tax rates could be altered. For instance, excise duty on diesel cars could be raised, the officials said.

Retaining the current tax rates means the government would have to depend on non-tax revenue and non-debt capital receipts to resume the path of fiscal consolidation, as suggested by the Reserve Bank of India.

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