Fintotal News Analysis | Income Tax Exemption Limit Proposed to Be Raised
Income Tax Exemption Limit Proposed to Be Raised
Ruby Jacob, 13 Feb 2012

The Standing Committee on Finance has recommended that income tax exemption limit for individuals be raised to Rs 3 lakhs from the present Rs 1.8 lakhs. The final draft of the report of the Direct Tax Code (DTC) Bill will be discussed by the Parliamentary committee in its meetings on February 17, 24 and March 2.

If accepted, close to 2.3 crores of the total 3 crore tax payers will be exempted from paying income tax. Major chunk of annual income tax collection comes from individuals in the highest tax slab.  The committee believes that raising taxable income from Rs 2 lakhs as proposed in the bill to Rs 3 lakhs will reduce irregularities in the tax collection structure as well as minimize compliance and transaction costs involved.  

The proposal for raise in exemption limit is also keeping in view double digit inflation which has eaten into the rupee's purchasing power. Lower purchasing power means that lesser goods and services can be purchased for a given quantity of rupee. Low purchasing power of currency reduces the buying power of its users which in turn reduces consumption and dampens production activities. Raising the tax exemption limit will leave more money in people's hands for consumption use.

Proposed changes in the Direct Tax Code (DTC), which is set to replace the Income Tax Act, will be discussed by the Standing Committee on Finance in its next meet. The government is likely to incorporate a few provisions of DTC in the upcoming budget to be tabled on March 16.   

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