A Parliamentary panel is set to recommend sweeping changes to the personal income tax slabs proposed by the Direct Taxes Code (DTC) Bill. A draft report prepared by the standing committee on finance suggests increasing the exemption limit to Rs 3 lakh, against Rs 2 lakh proposed by the bill.
The committee, chaired by Bharatiya Janata Party leader and former finance minister Yashwant Sinha, wanted annual income in the range of Rs 3 lakh to Rs 10 lakh be taxed at the rate of 10 per cent, those in the know told Business Standard. The Bill proposes this rate to be imposed on a slab of Rs 2 lakh to Rs 5 lakh.
The draft report recommends a 20 per cent rate for income between Rs 10 lakh and Rs 20 lakh, while the Bill proposes this rate for annual income of Rs 5 lakh to Rs 8 lakh. The committee wants the government to impose a peak rate of 30 per cent on annual income beyond Rs 20 lakh, against over Rs 10 lakh sought by the bill.
The report was not final and minor tweaking could be incorporated after a meeting tomorrow, they said. Tax slabs needed to be progressive, they said, adding: “Most of these assesses would fall in the category of Rs 3 lakh to Rs 10 lakh a year, which should get less income tax rate of 10 per cent.”
The finance ministry expects the committee to give its report in the Budget session, so the DTC could be introduced from April 1, 2013.
The committee will finalise its report tomorrow and give it to the government. “It is up to the government to table the report in the Budget session or not,” they said.
The suggestions in the draft report are much closer to the original discussion paper put out by the ministry on DTC. The paper had suggested a 10 per cent tax rate for income of Rs 1.6 lakh to Rs 10 lakh, 20 per cent for Rs 10 lakh to Rs 25 lakh and 30 per cent for income above that.
But the paper had also proposed to do away with a host of exemptions. After certain quarters protested, the ministry proposed to retain some of those exemptions in the bill, but also narrowed the slabs.
Currently, income over Rs 1.80 lakh up to Rs 5 lakh attracts 10 per cent income tax, over Rs 5 lakh and up to Rs 8 lakh 20 per cent and beyond Rs 8 lakh 30 per cent income tax.
The draft report also 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 have a tax advantage.
These provisions have assumed importance after the government lost the Vodafone case in the Supreme Court and many believe the next Budget may incorporate this proposal, even before the introduction of DTC.