Income tax exemption limit raised to Rs.2 lakh

Giving some relief to individual taxpayers, Finance Minister Pranab Mukherjee Friday proposed to raise the income tax exemption limit to Rs.2 lakh from Rs.1.8 lakh.

“For personal income tax, I proposed to enhance the exemption limit of general category of individual tax payers from Rs 180,000 to Rs 200,000. This measure will provide a tax relief upto Rs 2,000 to every taxpayer of this category,” Mukherjee said while presenting the Budget for 2012-13.

“I also propose to raise the upper limit of the 20 percent tax slab from Rs.8 lakh to Rs.10 lakh,” he said.

Under the proposed changes, income between Rs.2 lakh to Rs.5 lakh will be taxed at the rate of 10 percent, from Rs.5 lakh to Rs.10 lakh at the rate of 20 percent and above Rs.10 lakh at the rate of 30 percent.

To give relief to the individual taxpayers, a deduction of upto Rs 10,000 has been proposed for interest from savings bank accounts. This would help a large number of small taxpayers with salary incomes upto Rs.5 lakh and interest from savings bank accounts upto Rs.10,000 as they would not be required to file income tax returns.

The budget proposals allow a deduction of Rs.5,000 for preventive health check up while senior citizens not having income from business, are to be exempted from paying advance tax.

The finance minister, however, did not give any time-frame for the implementation of the proposed reform in direct taxes.

Implementation of the Direct Tax Code (DTC), which will replace the Income Tax Act, 1961, will miss the deadline of April 1, 2012 as the parliamentary Standing Committee’s report on the matter was received only on March 9.

Mukherjee said the government was taking steps for early implementation of the policy.

Although the committee had suggested raising the tax exemption limit to Rs.3 lakh, Mukherjee did not go ahead with the recommendation apparently in view of the need to contain the already alarming fiscal deficit.