New Delhi, Mar 9: Ahead of the Budget, a Parliamentary panel that scrutinised the Direct Taxes Code (DTC) Bill has suggested that income tax exemption limit be raised to Rs 3 lakh per annum, and the investment limit for tax savings schemes be hiked to Rs 3.20 lakh.
In its report, which was submitted to the Lok Sabha Speaker Meira Kumar today, the Standing Committee on Finance suggested that the wealth tax limit be pegged at Rs 5 crore, while the Securities Transaction Tax (STT) be abolished.
As regards the corporate tax, the Committee, which is headed by senior BJP leader and former Finance Minister Yashwant Sinha, recommended that the rate be retained at 30 per cent.
The report will pave the way for debate and passage of the DTC Bill, which seeks to replace the Income Tax Act, 1961, by Parliament.
Besides hiking the income tax exemption to Rs 3 lakh from Rs 1.8 lakh at present, the Standing Committee also suggested that 10 per tax be levied on taxable income between Rs 3-10 lakh, 20 per cent between 10-20 lakh and 30 per cent over Rs 20 lakh.
At present, 10 per cent tax levied on income between Rs 1.8-5 lakh, 20 per cent on income between Rs 5-8 lakh and 30 per cent above Rs 8 lakh.
The DTC has proposed income tax exemption limit at Rs 2 lakh, 10 per cent between Rs 2-5 lakh, 20 per cent Rs 5-10 lakh and 30 per cent above Rs 10 lakh.
With regard to tax savings scheme, the panel has proposed to raise the total tax exemptions limit under various scheme to Rs 3.2 lakh from existing Rs 1.8 lakh and Rs 2 lakh suggested by the DTC.
With regard to the wealth tax, the committee suggested that it should be levied only if the value of specified asset exceeds Rs 5 crore as against Rs 30 lakh currently and Rs 1 crore suggested by the proposed DTC Bill.
As regards the rate, it said, the wealth tax should be charged at 0.5 per cent on assets between Rs 5-20 crore, 0.7 per cent on assets between Rs 20-50 crore and 1 per cent above Rs 50 crore. The wealth tax rate now is 1 per cent.
The DTC Bill, which seeks to modernise the direct tax structure in the country, was referred to the Parliamentary Committee in August 2010.
The government, pending approval of the DTC Bill by Parliament, is likely to introduce some measures concerning taxes in the forthcoming Budget itself to be presented by Finance Minister Pranab Mukherjee in the Lok Sabha on March 16.
The Budget Session of Parliament will begin on March 12 with President Pratibha Patil addressing the joint sitting of Members of the Lok Sabha and the Rajya Sabha.
The parliamentary panel has suggested abolishing the Securities Transaction Tax (STT).
It has also recommended calibrating the capital gains tax regime - both short term and long term. With a view to incentivise only long-term savings and social security, the panel in its report has proposed to raise the tax exemption from existing Rs 1 lakh to Rs 1.5 lakh.
“... with regard to allowable deductions for expenditure incurred on life insurance, health insurance and fees paid for education of children, all of which together have been subject to a combined limit of Rs 50,000 per annum, the committee would recommend that this limit may be increased to Rs 1 lakh so that all the above expenses are covered in a reasonable manner,” the report said.
Further, additional deduction of Rs 20,000 on account of health insurance premium paid for dependent parents may be separately allowed with a view to promoting social security for senior citizens, it said.
“The committee further believe that since higher education, particularly professional education has become extraordinarily expensive for ordinary citizens of the country, similar additional deduction to the tune of Rs 50,000 may be permitted specially for this purpose over and above the deductions suggested above,” it said.
“Such focused deductions on personal incomes would help provide requisite relief to the middle-classes, while encouraging long term household savings for the benefit of the economy at large,” it added.
On the General Anti Avoidance Rules (GAAR), the panel suggested that the Finance Ministry and the Central Board of Direct Taxes should seek to bring greater clarity and preciseness to the scope of the provisions. There should be certainty on these provisions so that foreign investors do not become wary of investing in the country, it said.