DTC Proposals at a Glance

- CA Nupur Goel

It wouldn’t be an exaggeration to term the prevailing ‘Income Tax Act of 1961’ as ‘archaic’ and ‘obsolete’.The half-a-century old act has lost pace with time. The Indian economy has grown manifold since then, however the legislations have been lagging behind in addressing the issues which have emerged since then.  There are gaping loopholes, which have become a medium for rampant tax evasion, the slabs and limits are almost irrelevant. Direct Tax Code, if introduced, shall rationalise the tax laws to a great extent and usher in curbs on tax evasion. Below are some of the major changes in the tax laws that we can expect to see in the tax laws.(Based on the draft of Direct tax bill and the recommendations of standing committee, which were presented to the speaker on 09-03-2012).

	INC. TAX ACT ‘61	PROPOSED DTC
EXEMPTION LIMIT(individuals other than women and senior citizens):
B.E.L.	0-1.8L	0-3L
10%	1.8-5L	3-10L
20%	5-8L	10-20L
30%	>8L	>20L
80C LIMIT	1L	1.5L
CORPORATE TAXATION	30%	25%
MAT	20% of book profits	2% of Gross assets
WEALTH TAX
Exemption limit	30Lac	5Cr
Rates	1% flat	Slabs: (Rs. In Crore)
		0-5 :  Nil
		5-20  :  0.5%
		20-50  :  0.75%
		>50     :  1.00%
CAPITAL GAINS	Taxed on the basis of holding period as short term and long term.	Uniform taxation irresp. of period of holding at marginal rates appl. to assessee
STT	0.125%	Abolish

PERSONAL INCOME:

Unarguably, the tax burden on Individuals in India is among the highest in the world. In fact the tax rates are so excruciatingly high that it virtually penalises the honest for giving a true and full disclosure of their income. DTC has recognised the need for moderation and proposed the following changes:

*               The income tax slabs are proposed to be revised (as given in the table above), thereby raising the basic exemption limit to 3lacs and easing the tax burden on the individuals in 0-10Lac income segment.

*               To curb tax evasion, the value of non-cash perquisites to be added to salary and taxed.

*               To provide greater tax relief, the limits on specified investments U/s 80C are proposed to be raised to 1, 50,000. (from the existing 1,00,000)

*               Contribution to life insurance policy: The ratio of sum assured to premium, proposed to be raised to 10 times from the erstwhile 5 times.

*               Considering the heavy cost of higher education, the bill proposes to raise the deduction to Rs 50,000.

*               There is a proposal to tax the maturity amount of post-retirement benefits such as PPF, PF etc. (This may face stiff political opposition, due to the populist nature of these schemes)

WEALTH TAX:

ü   Threshold limit for wealth tax to be raised to 50 Crore (presently 30Lacs).

ü   Rate proposed to be revised, by introduction of slabs (as shown in the table above).

CAPITAL GAINS:

•  The concept of taxing gains as short term or long term, based on the period of holding of the capital asset, is proposed to be done away with. The two would be unified and harmonized.
•  Capital gains to be taxed at marginal rates applicable to the assessee.

HOUSE PROPERTY:

v   There has been an urge from all quarters to raise the statutory deduction, in order to make it more realistic and give ‘real’ benefit to the assessees. It is likely, that DTC would address this concern and raise the standard deduction limit.

CORPORATE TAX:

The attempt of the proposed changes is to make suitable modifications to the act to emphasize on taxation of revenue receipts and not capital receipts.

§    Proposes to ease tax rate to 25%.

§    Phasing out all PLI’s (Profit linked incentives) for industries and replacing them with Investment linked incentives

§    Amalgamations and demergers: proposed to be made tax neutral

§    Business losses to be allowed to be carried forward till ‘n’ number of years, till the loss is fully set off.

§    Securities Transaction Tax (STT) proposed to be abolished.

*               At present, there is widespread of tax holiday benefit given to industries. To prevent such misuse, it is proposed that there would be no fixed period of tax holidays. Instead, tax benefit based on capital and revenue expenditure, except land, goodwill and debt.

§    Proposal to have “tax consolidation of group entities” If implemented, it would be a path breaking move. It would remove the multiple levels of taxation in various companies of a group.

MINIMUM ALTERNATIVE TAX:

 ¤  MAT rate to be revised to 2% of gross assets for companies(other than banks). Banks to pay MAT at 0.25% of gross assets.

    

ASSESSMENT PROCEDURES:

Ø   Stringent penaltieson tax evasion, i.e. not just fine but also imprisonment in all cases of tax evasion.

Ø   Fast track courts to expedite the disposal of pending litigations.

Ø   Enormous powers to income tax officers.

Ø   Accountability:The onus of producing evidence to prove tax evasion to vest with the income tax authorities.

Ø   In case any unreasonable tax demands are raised by Income Tax officers, and such demands are subsequently quashedby the higher authority; then the fact would be reflected adversely in their career.

The proposals are radical and would have a very positive impact on the system. Hope the Finance Ministry accepts and implements them soon to give the much needed impetus to the economy.

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