Income tax exemption ceiling to be raised?

In view of the economic slowdown and high inflation, finance minister P Chidambaram is reported to be considering raising the income tax exemption limit from Rs2 lakh to about Rs2.5 lakh in the upcoming annual budget, according to a report.

The aim is to provide more funds to households for spending and saving, which could help recharge the economy, says the Hindustan Times.

The paper quoted an unnamed government official as saying, ''Most people are avoiding making purchases. The effort of the government would be to leave more money in the hands of the people.''

The Parliamentary Standing Committee on finances under Bharatiya Janata Party leader and former finance minister Yashwant Sinha, which looked into the Direct Tax Code Bill, proposed that the limit should be raised to Rs3 lakh and the subsequent tax slabs needed to be adjusted in a manner that would provide relief to people.

Parthasarathi Shome, advisor to the finance minister, recently said the government was considering the DTC bill while working on the tax structure as suggested by the committee.

The DTC, which is set to be implemented this year, will replace the Income Tax Act, which is over five decades old.

In the last union budget, then finance minister Pranab Mukherjee raised the income tax exemption limit by just Rs20,000 from Rs1.8 lakh to Rs2 lakh.

Surya Bhatia, financial tax planner, however, said this time the base tax exemption slab may be hiked even higher than Rs. 2.5 lakh, according to the report.