Finally, India is warming up to broadest tax reforms in the form of Direct Tax Code (DTC) and Goods and Services Tax (GST) . The former is centered around expectations to minimize tax exemptions, but widen tax slab on personal finances; and the latter revolves around evolving an efficient and harmonized consumption tax system in the country.
While the proposed GST Bill still remains mired by the opposition from BJP on grounds related to fiscal autonomy of States in indirect taxation, the Union Cabinet on Thursday approved legislation for the crucial direct tax reform – The Direct Tax Code (DTC) Bill.
Contents
Personal Income Tax Slabs – Basic Exemption Limits Raised!
In a big relief for the individual taxpayers, the new DTC has proposed widening of personal income-tax slabs marginally. The Cabinet-approved Bill proposes widening of the tax slabs with lowest rate of:
- 10% for Rs. 2-5 lakh taxable income (current slab Rs.1.6-5 lakh)
- 20% for Rs.5-10 lakh (current slab Rs.5-8 lakh) and
- 30% for above Rs.10 lakh taxable income group of people (current slab above Rs.8 lakh).
If you’re a Senior citizen or women, there is good news for you – the threshold income has been fixed at a higher Rs.2.5 lakh as against Rs.2 lakh for standard categories.
PERSONAL INCOME TAX
|
|||
|
(Amount in ‘ lakh)
|
10% |
20% |
30% |
|
Now
|
1.6-5 |
5 L -8L |
8L & above |
|
DTC I
|
1.6-10 |
10L -25 L |
25L & above |
|
Likely
|
5-Feb |
5-10 |
10L & above |
|
# Exemption limit to be raised from ‘1.6 lakh to ‘2 lakh
|
|||
(Source: Sify)
Higher Corporate Tax
On the Corporate tax front, the DTC Bill cleared by Cabinet has sought to retain the present level of 30% (for domestic companies), but inclusive of 10% surcharge and a 3% education cess. However, the above figure fall trifle short of expectations of the corporate lobby which stood at 25%, as proposed by the DTC draft released earlier.
Minimum Alternate Tax @20% – A Dampener!
The Bill seeks to impose Minimum Alternate Tax (MAT) at 20% of the book profit as against 18% being levied currently on the Indian companies. The original DTC draft had proposed to calculate MAT on gross asset base which could have translated into effective higher tax rate based on huge asset base for the companies operating in capital-intensive sectors such as infrastructure and capital goods. But, owing to sharp criticism, the levy is to be maintained on book profits, as now.
Further, the axe is likely to fall on Indian IT companies with the advent of DTC regime which would call for the end of “Tax holidays” enjoyed by these companies. This step will bring these IT companies on par with other industries prevailing in India.
Savings – EEE Model on PF to Reign!
In the first DTC draft released in August 2009, the Centre had proposed to cease most of the exemptions, including savings instruments, by taxing them at withdrawal of the investments as per the Exempt-Exempt-Tax (EET) methodology of taxation. However, the Cabinet-cleared DTC Bill has proposed to continue with the EEE method of taxation.
On public demand, the finance ministry had agreed to abandon its previous proposal on tax retirement benefits under Provident Fund. This measure is likely to act as a booster for public savings and income, but may culminate into potential losses in terms of prospective government revenues from taxes that could have been earned during the maturity of investments up to Rs.3 lakh in a fiscal year as per the Exempt-Exempt-Exempt (EEE) model.
To sum it up, the DTC Bill is softer on the aam-aadmi with a decent up-tick in the basic exemption limits, while not so conducive on the corporate lobbies in terms tax reliefs from what is already there in the Income Tax Act currently.
Your thoughts on new DTC ?