The Cabinet approved Direct Taxes Code (DTC) Bill on Thursday 26 August 2010, clearing decks for tabling the legislation in the Monsoon Session of Parliament so that the new Act ushering in reduced tax rates and exemptions may come into effect from next fiscal.
When enacted, DTC will replace the archaic Income Tax Act and simplify the whole direct tax regime in the country.
It has been referred to the Select Committee, and will be introduced in Rajya Sabha on Monday. As per the news reports, the version approved by the Cabinet provides the following under the new Direct Tax Code:
- Tax for income between Rs. 2 lakh - Rs. 5 lakh: 10%
- Tax for income between Rs. 5 lakh - Rs. 10 lakh: 20%
- Tax for income over Rs. 10 lakh: 30%
The limit for exemptions for salaried people is Rs. 2 lakh, while that for senior citizens is Rs. 2.5 lakh.
Corporate tax has been kept at 30%.
The code aims at reducing tax rates, but expanding the tax base by minimising exemptions. The Finance Ministry had earlier come out with a draft on the DTC bill, some of whose provisions drew strong criticism from industry as well as the public.
To address those issues, the ministry brought out the revised draft, dropping earlier proposals of taxing provident funds on withdrawal and levying Minimum Alternate Tax on corporates based on their assets. "As of now, it is proposed to provide the EEE (Exempt- Exempt-Exempt) method of taxation for Government Provident Fund (GPF), Public Provident Fund (PPF) and Recognised Provident Funds (RPF) .
", the revised DTC released by the Finance Ministry said. The revised draft also puts pensions administered by the interim regulator PFRDA, including pension of government employees who were recruited since January 2004, under EEE treatment.
The first DTC draft had proposed to tax all savings schemes including provident funds at the time of withdrawal bringing them under the EET (Exempt-Exempt-Tax) mode. Under the EEE mode, the tax exemption is enjoyed at all the three stages--investment, accumulation and withdrawal.
As regards MAT, it has been clarified that tax would be levied on the book profit, as is the current practice, and not on gross assets has proposed in the draft. The government, said, it had received 1,600 representations on the first draft which was made public in August last year
For corporates, too, the DTC appears to have flattered only to deceive. The code passed by the Cabinet has maintained the rate of tax on corporate incomes at the current 30%, against the 25% proposed originally, and the minimum alternate tax (MAT) for corporates at 20% of book profits.
Payment on interest on housing loans up to1.5 lakh will continue. The earlier draft was silent on housing loans.
CAclubindia
