The proposed increase in exemption limits in the Direct Taxes Code (DTC) Bill will benefit an overwhelming 96 per cent of taxpayers, who earn less than Rs 5 lakh a year.
The DTC Bill, which proposes to exempt income up to Rs 2 lakh from payment of income tax, compared to the existing limit of Rs 1.6 lakh, was introduced by Finance Minister Pranab Mukherjee in the Lok Sabha today.
"The objective of increasing the exemption level and providing little more relief at the low end has been targetted to get benefits across to the largest number of taxpayers," said Revenue Secretary Sunil Mitra.
The government plans to roll out the new direct tax regime from April 1, 2012.
Briefing newsmen after the Bill was tabled in Parliament, Mitra said around 96 per cent of India's taxpayers are in the earning bracket of Rs 1 lakh to Rs 5 lakh.
"95.75 per cent, to be precise, of India's 3.25 crore tax payers are in the slab of Rs 1 lakh to Rs 5 lakh of income. They pay around 30 per cent of our total taxes.
"The slab of Rs 8 lakh and above accounts for 2.2 per cent of our taxpayers, but they pay 60 per cent of the taxes, that leaves 10 per cent which is in the Rs 5 lakh to Rs 8 lakh," Mitra said.
According to the Bill, annual income from Rs 2-5 lakh is likely to attract tax at the rate of 10 per cent, while the Rs 5-10 lakh bracket will be taxed at 20 per cent and above Rs 10 lakh at 30 per cent.
At present, income between Rs 1.60 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.
People earning more than Rs 10 lakh a year may save up to Rs 41,040 in income tax, if the slabs proposed by the DTC Bill come into effect, experts said.
Similarly, the tax burden would reduce by Rs 21,540 for those earning an annual income between Rs 5 lakh and Rs 10 lakh, while those making Rs 2 lakh to 5 lakh could be richer by Rs 7,660, Deloitte Haskins & Sells Partner Neeru Ahuja said
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