In what could be dramatic cuts in personal tax rates, the Parliamentary standing committee on finance headed by BJP leader Yashwant Sinha has recommended minimum tax exemption limit to be set at Rs 5 lakh per annum.
Currently, male tax payers pay no tax upto Rs 1,80,000 annual income.
The committee has recommended that people earning between Rs 5 lakh and Rs 8 lakh would pay 10 per cent while those earning between Rs 8 lakh and Rs 20 lakh would pay 20 per cent. If the income is over Rs 30 lakh, the tax rate is 30 per cent, two committee members told NDTV Profit on conditions of anonymity.
The Standing Committee has 31 members.
Currently, the tax rate of 10 per cent and 20 per cent is applicable for income upto Rs 5 lakh and Rs 8 lakh respectively. An income over Rs 8 lakh attracts 30 per cent tax.
For someone who earns Rs 10,00,000 per annum or higher, the tax rate would be cut by more than half. Under the current tax regime, such a person pays Rs 157,000 as income tax. If the recommendation is implemented, this would be Rs 72,000.
For the higher bracket, the benefit is much bigger. For a person who earns Rs 30,00,000 a year, the tax liability would be cut to a third. Under existing tax rules, a professional or salaried pays Rs 7,72,000 as tax. If the standing committee recommendation is accepted, the tax rate will fall to Rs 2,57,000.
The government may or may not accept recommendations of the Standing Committee.
The committee has said that separate tax slabs for women should continue. It has also suggested removing wealth tax on religious trusts and charitable work.
However, the committee has deferred its decision on adopting the Direct Tax Code, sources told NDTV Profit. The committee has decided to summon finance ministry officials on 17 February.
It has also decided to review the direct taxation avoidance treaty in the light of the Vodafone judgement.
The recommendation is unlikely to find favour with the ministry of finance. The government is struggling to generate enough revenue receipts to bridge the fiscal deficit.
With direct tax collection growing at a slower pace of 9 per cent this fiscal so far, the government is likely to miss its revenue target for fiscal 2011-12.
According to data released by the finance ministry last Wednesday, net direct tax collections between April and January rose 9.28 per cent to Rs 3.46 trillion, mainly on account of higher realization of personal income tax and corporate tax.
Despite this, the government is likely to miss its full year target of Rs 5.32 trillion, which was based on an estimated growth of 19 per cent over the last year.
Net direct tax collection for the period in review is Rs 3.17 trillion, while gross direct tax collected was Rs 4.25 trillion, up 14.57 per cent from the Rs 3.71 trillion in the corresponding period last fiscal.