Tax structure cannot and should be seen as a mere revenue generation exercise- it is an important pillar of financial infrastructure of a nation. A tax structure which meets the criteria of certainty, ability to pay, convenience to pay and lesser collection cost is a sine qua non to sustain a growth oriented structure of a economy. It is really heartening to see that the proposed bill meets all these criteria and something more.
For individuals, the proposed rate is likely to be 10% for income upto 10 lakhs, 20% upto 25 lakhs and 30% above that. Incentive to save is likely to rise to 3 lakhs from the present 1 lakh. Corporate taxes are likely to be revised downward to 25%. Security Transaction tax is likely to be scrapped. Wealth tax is likely to be 0.25% for wealth above 50 crores. These rates compares well with rates applicable in other countries. The bill proposes to maintain better tax treatment to women, as compared to men, which may not go down well on the gender equality. There is no valid reason to be gender biased in taxation laws.
The code proposes Minimum Alternate Tax (MAT) based on gross asset value of the company at the rate of 2%. Thus asset heavy companies, taking shelter in depreciation is likely to suffer most. Divident distribution tax has been retained. The code emphasizes to stop tax avoidance through sophisticated means. It devotes a complete chapter on the issue. These are special provision to prevent evasion and unmask tax avoidance practices. The scope of meaning of tax avoidance has been significantly increased and puts heavy onus on the tax payer to establish bonafide of a suspected transaction.
The discussion paper makes a bold statement. Quote, “The Code is not an attempt to amend the Income Tax Act, 1961; nor is it an attempt to “improve” upon the present Act. In drafting the Code, the Central Board of Direct Taxes (the Board) has, to the extent possible, started on a clean drafting slate. Some assumptions which have held the ground for many years have been discarded. Principles that have gained international acceptance have been adopted. The best practices in the world have been studied and incorporated. Tax policies that would promote growth with equity have been reflected in the new provisions. Hence, while reading the Code, it would be advisable to do so without any preconceived notions and, as far as possible, without comparing the provisions with the corresponding provisions of the Income Tax Act, 1961” unquote.
The complete structure of exemption has been visited. Rather than giving blanket tax holiday for a specified period, the proposed bill provides for tax holiday for a period enough to recover the specified investment. Area based exemption is likely to be removed. The exemption granted to charitable institution is being revisited. The term charibale purpose is being replaced by permitted welfare activities, which means, “any activity involving relief of the poor, advancement of education, provision of medical relief, preservation of environment, preservation of monuments or places or objects of artistic or historic interest and the advancement of any other object of general public utility”- well the definition remains the same despite change in nomenclature. The bill proposed to tax the “surplus” and “capital gains” from permitted welfare activities at the rate of 15%. This appears to be a compromise between full exemption and full taxation. The complexity in the area remains, albeit lesser than the present regime.
On the whole- a bold step. This will go a long way in transforming India into a truly developed economy in years to come. Thank you, Mr. Minister Sir.
(Views expressed are personal views of the author.)
Written by:- Advocate Rajesh Kumar. The author can be contacted on The author can be contacted on [email protected] , Web: www.rajeshkumar.co.in