DTC sop: Govt plans higher basic income tax exemption limit, hike in medical & conveyance allowances
April, 03rd 2013
The government is ready with the direct taxes code (DTC) to shower goodies on taxpayers as it faces the prospects of an early election.
On the menu are higher basic exemption limit, increase in the allowances such as medical and conveyance that have remained unchanged for many years, and bigger incentives for savings.
"We are ready to move the bill at a two days notice. We have worked out the various scenarios of exemption limit and its implication for tax collections" a finance ministry official told ET.
The former finance minister Yashwant Sinha headed standing committee on finance that vetted the code has already suggested that the basic exemption limit be raised to 3 lakh. It stands at 2 lakh right now.
Finance minister P Chidambaram has already said that he would want to introduce the bill in the budget session, the second leg of which will begin on April 22 and last for a month.
"It's a good way of giving tax sops ahead of the election," the official said adding that the next budget will be a vote on account and the government will not be in position to give away too much.
The limit could be increased to 2.5 lakh or more if the economy begins the look up. Experts agree that there is not much in the direct taxes code anyway now.
Its most radical provisions have either been dropped or the ones like General Anti-Avoidance Rules ( GAAR) already incorporated in the law through the budget in the last couple of years.
'"The finance act 2012 brought forward a substantial portion of the DTC and there may not be many areas of tax legislation left,'' said Sunil Jain, partner, JSA & Associates.
Chidambaram had not increased the personal exemption limit in the budget citing the need for fiscal consolidation.
The DTC could allow for higher exemption limit from the next fiscal, allowing the government to take credit to the sops while ensuring that its finances are not impacted in the current year.
The standing committee has suggested that income upto 3 lakh be exempt from tax, 3 lakh to 10 lakh be levied 10% tax, 20% on 10 lakh to 20 lakh and 30% on income over 20 lakh.
At present the peak 30% rate is levied on income in excess of 10 lakh.
Similarly, the various deductions that have not been increased for many years could also be revised up through the Code. These include the 800 transport allowance, 15,000 for medical expenditure, 15,000 for health insurance for family and self and 12,000 for school fees.
The DTC code had proposed 1 lakh exemption for long-term saving and another 50,000 for life insurance, health insurance and fees paid for education of children.
The standing committee has suggested that the limit for savings be increased to 1.5 lakh and that for life insurance, health insurance and education to 1.5 lakh.