In a move that could leave more money in the hands of people, the government on Thursday proposed to raise exemption limit on income tax from the present Rs 1.6 lakh to Rs 2 lakh.
The Cabinet approved the much-awaited Direct Taxes Code (DTC) Bill, which is likely to be tabled in Parliament during the ongoing Monsoon session and referred to a select committee of members of both the houses.
The bill also seeks to remove surcharge and cesses on corporate tax, providing relief to business houses.
When asked what will be the limit of exemptions for income tax, Finance Minister Pranab Mukherjee told reporters after the Cabinet meeting that it is proposed to be raised to Rs 2 lakh from the current Rs 1.6 lakh.
To a query on what the new tax slabs would be, Mukherjee said, "That will be discussed in Parliament." Sources, however, said income between Rs 2-5 lakh is likely to attract a rate of 10 per cent, 20 per cent for Rs 5 -10 lakh bracket and 30 per cent above Rs 10 lakh.
For senior citizens and females, the tax slabs are likely to be relaxed further, they added.
"The whole objective is that a plethora of exemptions will be limited. (Income) tax slabs will be three. Rate of taxes will be taken in the schedule so that they need not be changed every year," Mukherjee said.
On the corporate tax, the finance minister said it is sought to be retained at the present level of 30 per cent, but there will not be any surcharge or cesses on it.
According to sources, the DTC bill is likely to be tabled in Lok Sabha on Monday. Thereafter, it will be referred to the select committee, they added. At present, income between Rs 1.65 lakh and Rs 5 lakh attracts 10 per cent tax, while the rate is 20 per cent for the Rs 5-8 lakh bracket and 30 per cent for above Rs 8 lakh.
The first draft of the bill had suggested 10 per cent tax on income between Rs 1.60 lakh and Rs 10 lakh, 20 per cent on income between Rs 10 and Rs 25 lakh and 30 per cent beyond that. However, finance ministry officials had later said those slabs were just illustrative.
The Bill, approved by Cabinet, also seeks to impose minimum alternate tax (MAT) at 20 per cent of the book profit, compared to 18 per cent at present. The first draft had proposed to impose MAT on assets, which drew strong criticism from the industry.
The MAT on book profit has been maintained in the revised draft as well. It had also proposed to tax long-term savings like PF at the time of withdrawal.
The revised draft exempted them. "Concerns were expressed for shifting from EEE (exempt, exempt, exempt) to EET (exempt, exempt, tax)," Mukherjee said. This would also address the issue of taxing surplus funds of charitable institutions, he said.
