The Direct Tax Code is unlikely to give much relief to income tax payers as the finance ministry today said the higher slabs, proposed earlier, may be altered in the Bill. The move is aimed at offsetting the revenue losses arising from the new proposal to drop the earlier plan to tax provident and pension funds at the time of withdrawal and levy MAT on gross assets and not profits. The government released a new DTC draft on Tuesday with clarification on a lot of contentious issues in the first draft.
“The proposals in the revised discussion paper would lead to reduction in the tax base proposed in the DTC (last year),” sources in the Finance Ministry told PTI.
The first discussion paper floated last year had proposed a substantial widening of the tax base. It suggested imposing 10 per cent tax on income of up to Rs 10 lakh, 20 per cent on income up to 25 lakh and 30 per cent beyond Rs 25 lakh. These tax slabs proposals were substantially wider than even the increase implemented in this year’s budget.
The budget had imposed 10 per cent tax on income of Rs 1.6 lakh-5 lakh, 20 per cent on Rs 5 lakh-8 lakh and 30 per cent over Rs 8 lakh. Before this, the slabs were from Rs 1.6 lakh-3 lakh, Rs 3 lakh-5 lakh and over Rs 5 lakh in a year. Women and senior citizens enjoy greater relief.
The sources said the first discussion paper had said that the government would consider calibrating the tax rates in the light of the responses and comments received on the scope of the tax base proposed.
The proposals in the first discussion paper to tax long-term savings like pension and provident funds at the time of withdrawal and imposing MAT on gross assets of companies drew strong criticism. Responding to these strong comments, the revised draft did away with both the proposals.
Now MAT, the tax on profits of companies that do not come under the tax net due to exemptions, will be levied on their profits, instead of gross assets.
The revised paper also retains the present provisions of giving income tax exemption on interest paid on homeloans up to Rs 1.5 lakh annually. As such, tax slabs proposed in the first discussion paper will be calibrated accordingly, the sources said, adding tax slabs proposed in the first draft were anyway illustrative in nature. The government also claimed that the revised tax exemptions will not lead to any revenue loss to the Exchequer.