A Parliamentary panel on Friday adopted its recommendations on the Direct Taxes Code (DTC) Bill, which suggests sweeping changes in the personal income tax regime.
Parliamentary Standing Committee on Finance would give its report in a week to the finance ministry, which would then submit it to Parliament in the Budget session, those in the know told Business Standard.
The committee has suggested increasing the income tax exemption limit to Rs 3 lakh a year, against Rs 2 lakh proposed in the Bill. The threshold now is Rs 1.80 lakh a year.
The committee, chaired by Bharatiya Janata Party senior functionary and former finance minister Yashwant Sinha, wanted a 10 per cent rate to kick in for annual income of Rs 3-10 lakh, according to sources. The Bill proposes this rate to be imposed on a slab of Rs 2-5 lakh. The panel also recommended that 20 per cent income tax rate be paid by those earning Rs 10-20 lakh a year. This slab was proposed to be Rs 5-8 lakh in the Bill. The committee wanted the government to impose a peak rate of 30 per cent on annual income above Rs 20 lakh, as against above Rs 10 lakh sought in the Bill.
REBATE TALK Key recommendations of the Parliament Standing Committee on Finance
* Raise annual income limit for I-T from Rs 1.8 lakh to Rs 3 lakh
* 10% I-T on annual income beyond Rs 3 lakh and up to Rs 10 lakh
* 20% on annual income beyond Rs10 lakh and up to Rs 20 lakh
* 30% on annual income over Rs 20 lakh
* Exemption up to Rs1.5 lakh for social security contributions
* Exempt expenses on professional studies or education up to Rs 50,000 a year
* Increase exemption limit on long-term savings from Rs 1 lakh a year to Rs 1.5 lakh
* Annual contribution up to Rs 1 lakh for medical insurance should also be exempted, besides Rs 50,000 for dependent parents
The panel has authorised Sinha to make minor changes in the recommendations.
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 has said.
The panel did not suggest any changes in the corporate tax rates.
The panel wanted the government to cautiously implement the General Anti-Avoidance Rules. These provisions, contained in the Bill, are aimed at authorising the tax department to demand tax in situations where the main motive of a transaction is to get a tax advantage.
These provisions have assumed importance after the government lost the Vodafone case in the Supreme Court. Many believe the Budget may incorporate the proposal, even before the introduction of DTC
While the Bill puts the onus on those involved in a deal to prove that they have not intended to avoid tax, the committee recommends that it should be the other way round.
Officials said after the submission of report in Parliament, the finance ministry may table the revised bill in the Monsoon session.
The Bill is expected to be introduced from April 1, 2013.
Currently, income of Rs 1.80-5 lakh attracts 10 per cent income-tax, Rs 5-8 lakh attracts 20 per cent and above Rs 8 lakh 30 per cent.
Parliamentarians were of the view that personal income-tax be widened significantly as the bulk of 89 per cent of taxpayers fall under the annual income of up to Rs 5 lakh, but pay just 0.10 per cent of overall tax. On the other hand, just 1.3 per cent of taxpayers have over Rs 20 lakh income in a year, but they pay over 62 per cent of taxes.
Around 35 million people pay personal income-tax in India.