NEW DELHI: The Parliamentary standing committee on finance, in its final report on Friday, suggested reworking the income tax slabs, seeking exemption for income up to Rs 3 lakh and wanting the highest tax rate of 30% to kick in at over Rs 20 lakh. To make the tax system more predictable, the panel recommended that the slabs be indexed to inflation.
The report, which will help the government push the Direct Taxes Code, has also suggested that the exemption limit for savings be enhanced from Rs 1 lakh to Rs 1.5 lakh. It suggested that the exemption limit for life and health insurance, and education, be doubled to Rs 1 lakh and a separate deduction of Rs 50,000 be permitted for higher education.
For purchasing medical insurance for elderly parents and grandparents, an additional exemption of Rs 20,000 should be given, although it is silent on housing loan exemption which is currently at Rs 1.5 lakh.
The committee has recommended an exemption of Rs 3.2 lakh (excluding home loans), instead of Rs 2.7 lakh (including home loans) at present. If the parliamentary panel’s prescriptions find favour with the government, those with annual income of up to Rs 6.2 lakh will stay outside the tax net. Further concessions for women and senior citizens in the tax slabs have also been recommended in the report. The panel has suggested that the senior citizen cut-off age be lowered to 60 years, instead of 65.
The slabs suggested by the panel are far more liberal than those suggested in the DTC Bill although it is lower than what was proposed in the draft Bill in 2009. In the Bill introduced in August, 2010, the government had suggested that income up to Rs 2 lakh be outside the tax ambit, a 10% levy was proposed for annual income of Rs 2 lakh-Rs 5 lakh, 20% for Rs 5 lakh-Rs 10 lakh, while above Rs 10 lakh, the 30% rate was to be applicable.
There is no relief for companies that the panel headed by former FM Yashwant Sinha has suggested that corporation tax rate be retained at 30%, instead of 25% proposed in the draft Bill. There is also a suggestion to dispense with STT and raise the wealth tax exemption limit from Rs 30 lakh to Rs 5 crore. tnn
While the DTC Bill is pending in Parliament, the new law is unlikely to be in place by April when the next financial year begins. As a result, the proposed slabs, if accepted by the government and endorsed by the legislature, will only be applicable from April 2013.
The panel is also not in favour of annual tinkering in tax slabs. Instead it has suggested that it should be indexed to inflation. “The committee notes that almost every year, the exemption limit is being tinkered with, albeit marginally. This, however, does not have any linkage with the price index or the growing inflationary trend. The committee would, therefore, desire that there should be a built-in mechanism embedded in the statute itself based on consumer price indices, whereby the tax slabs would be automatically and periodically adjusted for inflation,” the 360-page report said.
The committee argued that moderate tax rates would “induce better tax compliance with a view to giving some relief to the small tax payers.” In addition, it said that compliance and transaction cost will come down, helping the income tax department “focus their attention and re-orient their resources on the higher income groups, untaxed or concealed incomes, and categories and sectors that are avoidance or evasion prone.” By increasing the cut off to Rs 3 lakh, over 2.5 crore of the 3.3 crore tax payers would go out of the tax net. Government data suggests that 89% of the taxpayers are up to Rs 5 lakh bracket with collections estimated at around Rs 11,000 crore.
Source: Times of India