A parliamentary standing committee on finance headed by Yashwant Sinha is expected to finalise a report on the Code Bill that is expected to replace the income tax law.

The new draft proposal of the regulation suggests increasing the income tax exemption limit to Rs 3 lakh a year against Rs 2 lakh proposed in the Bill. However, The central government is likely to offer some relief to the individual tax payers and might raise the exemption limit to Rs 2 lakh within the Direct Taxes Code (DTC) and hike slabs for different tax brackets in the upcoming Budget 2012-13.

Finance Minister Pranab Mukherjee is expected to release Budget proposals in mid march and experts believe that tax slab should be increased due to the high inflationary pressures.

Even as the government is expected to increase the exemption limits, it is not likely to reduce the tax rates due to the fiscal constraints being faced by the government. The Parliamentary Standing Committee is currently studying the DTC. It recommends raising the income tax exemption limit to Rs 2 lakh from Rs 1.8 lakh.

It also suggests that the highest personal income tax rate of 30 per cent should only be applicable to income above Rs 10 lakh instead of Rs 8 lakh at present.