A parliamentary panel has submitted its recommendations on the Direct Taxes Code (DTC) bill, potentially giving the government leeway to please taxpayers in the March 16 budget and win back favour after suffering severe setbacks in recent state elections.
If the recommendations of the standing committee on finance headed by senior BJP leader Yashwant Sinha are accepted, nearly 90% of taxpayers will drop out of the tax net while others could see their tax liabilities come down.
The committee has suggested that the basic exemption limit be raised to Rs 3 lakh from Rs 1.8 lakh now and income up to Rs 10 lakh attract only 10% tax. The highest 30% tax slab is proposed to kick in only on income in excess of Rs 20 lakh.
The government is not obliged to accept the recommendations of the committee, but may go with it because of the reduced political clout it has now.
The committee has also suggested increasing the threshold for wealth tax to Rs 5 crore from Rs 30 lakh and the abolition of the securities transaction tax, but suggested that the corporate tax rate be retained at 30%.
"The committee would expect the tax policy and procedures to be fair, just and equitous, bringing fiscal stability at least over the medium term, obviating the need to make changes in rates structure during every Budget," said the standing committee's report, which was made public on Friday.
Finance Committee recommends liberal tax regime for DTC
The Standing Committee on Finance has recommended a very liberal tax regime in its suggestions on the Direct Taxes Code Bill, 2010 ( DTC). The key recommendations made by the committee affecting individual tax payers are:
Tax rates
The basic exemption limit as contained in DTC is recommended to be enhanced from 1.8 lakhs to 3 lakhs and the tax slabs are also to be expanded wherein individuals to pay tax at10% on income between 3 lakh and 10 lakh, 20% on income between 10 and 20 lakhs and 30% on income above 20 lakh.
Employment Income
Payment and reimbursement of medical insurance premium be made tax-free. Under DTC, it is considered a taxable perk. Committee has also recommended taxing the stock option benefits only at the time of sale/alienation rather than on vesting.
Rental Income
DTC proposed to tax the rental income from commercial properties as income from house property. The committee has recommended to tax the same as income from business, the same way it is being done now.
The standard deduction for repairs, etc., which is proposed at 20% in DTC has also been recommended to be enhanced.
For deduction of housing interest for loan taken for self-occupied house, it has been recommended to include repairs and renovation loans. Accordingly, where any loan is taken for repairs and renovation completed in 3 years would qualify for deduction up to 1.5 lakhs. Presently, it is allowed up to 30,000)
Capital Gains
Security Transaction Tax (STT) to be removed and capital gain tax regime should be brought back in relation to shares, securities and mutual funds, etc.
Deductions and Exemptions
DTC proposed to restrict the deduction of 100,000 only to the approved fund(s) viz. approved provident fund, pension fund, superannuation fund, PPF. The committee has recommended that the above limit be raised to 1.5 lakhs.
Under DTC, an additional deduction of 50,000 is proposed to cover payments such as life insurance premiums (premium not to exceed 5% of sum insured), health insurance premiums and the tuition fee. The said limit has been recommended to be raised to 1 lakh and life insurance policies where premium does not exceed 10% should also be eligible for deduction. Further, a separate deduction of 20,000 is recommended for medical insurance of senior citizens.
An additional deduction of 50,000 has also been recommended for higher education.
Source: The Economic Times
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