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Saturday, February 25, 2012

Parliamentary panel for raising income tax exemption limit to Rs 3 lakh

NEW DELHI: A parliamentary panel scrutinising the proposals of the new direct taxes code has recommended a sharp increase in the tax exemption limit on basic income to 3 lakh and on investments to 2.5 lakh.
The recommendation represents a 67% increase over the current limit on basic income tax exemption limit of 1.8 lakh and 65% over the 1.55 lakh limit for investments, including health insurance. Health insurance for senior citizen parents will be eligible for another 20,000 rebate, the same as the current limit.
"Convergence is emerging on raising basic exemption limit and investment threshold," a panel member told ET after the committee's meeting on Friday.
The new direct taxes code, or DTC, which will replace the nearly 50-year-old Income Tax Act of 1961, was referred to the panel headed by BJP leader Yashwant Sinha in August 2010.
The panel will meet on March 2 to give final touches to its report, which is expected to be tabled in Parliament in the upcoming budget session. This will pave the way for the ambitious recast of the country's direct taxes regime that was first mooted in 2009.
The panel's recommendations are significant as the government is entering the last leg of its budget exercise, though the report itself is likely to be submitted after the budget. "The panel will present its report to Parliament in the third week of March," the member said.
The DTC Bill proposes a tax exemption limit of 2 lakh, a rebate of 1.5 lakh for investments, and a revision of tax slabs. It recommends taxation of income in the 2-5 lakh bracket at 10%, between 5 lakh and 10 lakh at 20%, and beyond 10 lakh at 30%. Under the current regime, income of 1.8-5 lakh attracts 10% tax, 5-8 lakh 20%, and above 8 lakh, 30%.
The member said that the panel favours a higher exemption threshold to provide relief to taxpayers from high inflation and boost savings. The government, however, is not bound to accept the recommendations.
Although the DTC Bill is unlikely to be passed in the upcoming budget session, the Union Budget for 2012-13, which is to be presented on March 16, is expected to bring forward several measures proposed in the Bill.
The finance ministry will weigh the fiscal implication of the recommendations before deciding to raise the limits in the current year itself.
With the fiscal deficit for the current year expected to overshoot the target of 4.6% of GDP by a percentage point, the government is under pressure to show greater commitment to fiscal consolidation.
Tax experts, however, feel the proposals can be implemented. "This would have marginal impact on revenues, if any, and will only affect tax collection at the bottom of the pyramid," said Amitabh Singh, partner, Ernst & Young .
Members of the Sinha panel have also suggested status quo on a rule that says anyone staying in the country for more than 180 days becomes a resident, and hence eligible for taxation in India. The DTC had suggested reduction in this period to 60 days to curtail abuse of this rule.
The panel is also not in favour of change in the rules for non-profit organisations.
Among the other proposals being considered is a general anti-avoidance rule, which will empower authorities to disregard any arrangement entered into with the purpose of obtaining tax benefit.
The other proposals include taxation of gains arising from transfer of shares of a foreign company if assets held by such foreign companies in India, directly or indirectly, at any time during the year preceding the transfer constituted at least 50% of its total assets and Place Of Effective Management to define resident, Controlled Foreign Company regime and widening of wealth tax ambit.
Source : The Economic Times, Feb 25, 2012

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