DTC introduced in Parliament with marginal benefits
Diluting some of the promises, government on Monday introduced in the Lok Sabha the Direct Taxes Code Bill seeking to increase exemption threshold for income tax payers and reduce corporate taxes while removing the preferential treatment for women.
The 319-clause bill, tabled by Finance Minister Pranab Mukherjee, seeks to replace the five-decade old Income Tax Act, 1961, and will come into effect from 1st April, 2012, one year later than promised earlier, if passed by Parliament.
Under the Code, the income tax exemption threshold will go up from Rs 1.6 lakh per annum to Rs 2 lakh, while the corporate tax rate will come down from 33.2 percent to a flat 30 percent.
Income from Rs 2-5 lakh is proposed to be taxed at 10 percent; Rs 5-10 lakh at 20 percent and 30 percent thereafter.
Though senior citizens, persons above 65 years, will get additional benefit, women tax payers will not be accorded special treatment available to them in the IT Act.
The new tax slabs will help save up to Rs 41,040 for people earning more than Rs 10 lakh a year and Rs 7,660 for income up to Rs 5 lakh.
The tax exemption on savings and as also payment of interest up to Rs 1.5 lakh on housing loan have been retained in the proposed Bill along with the EEE (exempt-exempt-exempt) mode of taxation for insurance and pension funds.
The moderation of taxes together with concessions are estimated to result in a revenue loss of Rs 53,172 crore in 2012-13 if the present rates were to be applied.
The gross tax revenue from direct taxes will come down from an estimated Rs 5.80 lakh crore to Rs 5.27 lakh crore under the proposed code.
The Bill, which will also replace the Wealth Tax Act besides the IT Act, has been referred to a Parliamentary Committee for scrutiny and suggestions.
The new code will have 319 sections and 22 schedules as against 298 sections and 14 schedules of the existing IT Act.
As per the DTC Bill, the exemption limit for senior citizens, is proposed to be raised marginally to Rs 2.5 lakh from Rs 2.40 lakh now.
Currently, income from Rs 1.6-5 lakh attracts 10 percent tax; from Rs 5-8 lakh, 20 percent and beyond Rs 8 lakh, 30 percent.
The proposed tax slabs are much lower than originally suggested in the draft DTC bill - 10 percent for Rs 1.6 lakh to Rs 10 lakh, 20 percent from Rs 10-25 lakh and 30 percent for income above Rs 25 lakh.
According to estimates, an individual tax payer earning more than Rs 10 lakh would save up to Rs 41,040 annually under the DTC vis-a-vis the current tax rates.
The legislation also proposes to increase Minimum Alternate Tax (MAT) from 18 percent to 20 percent of book profit of a company, an issue which evoked sharp reaction from industry.
It seeks to levy dividend distribution tax at 15 percent.
When enacted, DTC will replace archaic Income Tax Act. (SS-30/08)
DTC: No spl tax status for women, more rebate for sr citizens
While senior citizens will continue to enjoy greater tax exemption, women tax payers will lose their special status under the proposed Direct Taxes Code.
The Bill proposes to raise the tax exemption limit for senior citizens above 65 years to Rs 2.5 lakh per annum from Rs 2.4 lakh at present.
The income tax exemption limit for general tax payers has been proposed at Rs 2 lakh, up from Rs 1.6 lakh at present.
The Bill, however, is silent on women tax payers.
Under the existing rules, the income tax exemption limit for women tax payers is Rs 1.9 lakh per annum, as compared to Rs 1.6 lakh for general tax payers.
As there is no special category for women, their incomes will be taxed at the rates applicable for general tax payers.
However, tax experts believe that the government will later on include a 'women' category in the Bill when it comes up for deliberation in the Parliament Committee.
"The women category would be included later on in the DTC Bill. It is possible that the exemption limit would also increase," PWC Executive Director (Tax and Regulatory Services) Ajay Kumar said.