Bill is scheduled to be tabled in Parliament on Monday.
Individuals and companies can expect some relief in the Direct Taxes Code (DTC), with the government planning to widen personal income-tax slabs, enhance the exemption limit and remove levies on corporate tax.
While the government remained silent on the tax slabs, the highest rate of 30 per cent may kick in for those with a taxable income of over Rs 10 lakh, against Rs 8 lakh at present. With the exemption limit increased from Rs 1.6 lakh to Rs 2 lakh, those earning between Rs 2 lakh and Rs 5 lakh, the tax rate will be 10 per cent. Individuals with an income of Rs 5-10 lakh will have to pay tax at 20 per cent. For senior citizens and women, the tax slabs are expected to be more generous.
| PERSONAL INCOME TAX | |||
| (Amount in ' lakh) | 10% | 20% | 30% |
| Now | 1.6-5 | 5-8 | 8 & above |
| DTC I | 1.6-10 | 10-25 | 25 & above |
| Likely | 5-Feb | 5-10 | 10 & above |
| # Exemption limit to be raised from '1.6 lakh to '2 lakh # Further relief for women, senior citizens expected # Corporation tax rate stays at 30%, but no cess or surcharge proposed # MAT rate to be raised from 18% to 20% of book profits | |||
Finance Minister Pranab Mukherjee, however, said the rates would be disclosed in Parliament when the Bill is presented on Monday.
Corporation tax is sought to retained at the present level of 30 per cent, but without any surcharge or cess, Mukherjee told reporters after the Cabinet meeting clearing the DTC Bill. The Bill seeks to overwrite the Income-Tax Act, 1961.
"The whole objective is that a plethora of exemptions will be limited. (Income-) tax slabs will be three. Rate of taxes will be taken in the schedule so that they need not be changed every year," Mukherjee said.
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One government official told Business Standard that the Finance Ministry wants the DTC Bill to be referred to a select committee consisting of only Lok Sabha members, not a standing committee with members of both Houses. “Since this is a money Bill, Rajya Sabha members do not have voting rights to decide its fate. How can they decide the fate of the Bill in the standing committee?” the official said.
The proposed slabs are, however, a climb down from what was proposed in the first discussion paper on DTC, released last August. The government had then proposed to do away with most exemptions, including savings instruments, by taxing them at the time of withdrawal. But bowing to pressure, the government dropped the plan.
| THE NEW CALCULATION Individuals (other than resident females or senior citizens) Amount in ' | ||||||
| Now | DTC | Now | DTC | Now | DTC | |
| Taxable Income | 500,000 | 500,000 | 800,000 | 800,000 | 1,000,000 | 1,000,000 |
| Tax | 34,000 | 30,000 | 94,000 | 90,000 | 154,000 | 130,000 |
| Add: Education Cess @ 3% | 1,020 | - | 2,820 | - | 4,620 | - |
| Total Tax | 35,020 | 30,000 | 96,820 | 90,000 | 158,620 | 130,000 |
| Saving | - | 5,020 | - | 6,820 | - | 28,620 |
| DTC refers to likely rates to be proposed by the government in the Direct Taxes Code Compiled by PwC | ||||||
Also, unlike the original proposal that sought to impose minimum alternate tax (MAT) on gross assets, which drew strong criticism, the government has now decided to continue with the system of levying MAT on book profits. The MAT rate is, however, proposed to be increased from the present 18 per cent to 20 per cent.
“This is a bit disappointing for individual taxpayers, as the original DTC proposal was quite liberal. However, the proposed rates represent some concessions, compared to current tax slabs. I do not anticipate significant relief for companies, with profit-linked exemptions being replaced with investment-linked incentives and MAT of 20 per cent,” said PricewaterhouseCoopers Executive Director Ajay Kumar.