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Direct Tax Code : Lost the original Glitter while Moderation !

 

In the year 2009, Government had announced the adoption of Direct Tax Code (DTC) from 01/04/2011. This announcement had created a big hype everywhere, be it individual or corporate sector as they were hoping for the much awaited & dreamed tax reforms to come.

 

When the actual proposal for DTC bill was presented, it still gave a very positive signal with some areas of concerns like bringing EET regime for all including PF, Minimum alternate tax based on asset base etc.

 

Even then the original proposal was aimed to focus on a longer version of issues such as :

 

Helping Wealth Creation for Individuals with a much wide slab

 

§                    10% for Rs. 1.6 to 10 lakh taxable income (current slab Rs.1.6-5 lakh)

§                    20% for Rs.10-25 lakh (current slab Rs.5-8 lakh) and

§                    30% for above Rs.25 lakh taxable income (current slab above Rs.8 lakh).

 

Lesser Cash Out-Flow for Corporate Sector

With a view to make the corporate sector, cash rich, the much demanded or rather pleaded ask for tax @ 25 %, was met.

Minimum Alternate Tax @18% on asset base – A Dampener!

 

 The original DTC draft had proposed to calculate MAT @ 18 % on gross asset base with a view to garner effective higher tax rate based on huge asset base for the companies operating in capital-intensive sectors such as infrastructure and capital goods.  No carry forward was proposed. Even then, corporate sector was hopeful of reversing this basis to some other feasible one.

Savings – EEE Model on all savings.

 

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 to bring the system at par with many European countries.

Process of Moderation in the original DTC.

In the process of moderation of DTC based on inputs from various corners of society, it actually lost most of the hype & charm. Simply to say, as the department were forced to retain many of the exemptions by way of retaining EET regime for many investments, Income tax rebates / deductions, MAT on the base of Book profit with a carry forward etc, they went for a re-calculation of all the revenue model & finally arrived at a conclusion which effectively nullified their original process.

·         The individual are being offered only a marginal relief from 1.6 Lacs to 2.0 Lacs & from 8.0 Lacs to 10.0 Lacs. So , 30 % regime for over 25 lacs (!) ……. remained an UN-FILLED DREAM.

·         Corporate Sector have to wait for another long tenure before their ask of tax @ 25 % gets heard as the current bill retain it @ the existing 30%.

·         MAT has been brought to a even higher figure of 20%, so.. a new or loss making companies or companies availing current IT benefits, to face the music in much more sharper tune.

Conclusion


What was initially proposed was so strikingly dynamic and was expected to bring a sea change by way of tax reforms. However, what has finally come has been edited in so many ways that it did not translate into much good-feel factor for most salaried tax payers. Further, the corporate sector remained fumed over non-fulfillment of their most of the demands.

 

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Category Income Tax, Other Articles by - CMA. Subhash Kumar Jha 



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