Even as the government sought to explain the postponement of the implementation of the Direct Taxes Code (DTC) Bill by a year, the fact remains that revenue shortfall can perhaps be made up only on simultaneous introduction of the proposed Goods and Services Tax (GST), which is still in a tangle with the States.
At a press briefing here, Revenue Secretary Sunil Mitra conceded that when the DTC came into force from April 1, 2012, the revenue mop-up through direct taxes would be lower by Rs. 53,172 crore. That is a huge amount, although it will be made up in subsequent years through a wider base and better tax compliance. In such a scenario, GST implementation is expected to make up for a large part of the shortfall as the indirect levy suggested is, on the whole, higher than the existing rates.
However, the problems in switching over to a new tax code need to be appreciated. Giving reasons for the one-year DTC delay, an official note said: “The Code will become effective after approval by Parliament, from April 1, 2012. Advance tax and TDS at the rates mentioned in Schedules to the Code will thus become operative from April 1, 2012 and the first return of income under its provisions, will be filed after March 31, 2013. This will permit taxpayers, practitioners and tax administrators to become fully familiar with its provisions and also permit introduction of new formats and changes in systems software.”
As per the DTC Bill, while the income tax exemption limit is to be raised to Rs. 2 lakh, a 10 per cent tax is to be levied on income of above Rs. 2 lakh up to Rs.5 lakh on the amount by which the total income exceeds Rs. 2 lakh. Likewise, for individuals whose income exceeds Rs. 5 lakh but does not exceed Rs. 10 lakh, the tax would be Rs. 30,000 plus 20 per cent of the amount by which the total income exceeds Rs. 5 lakh. For those whose total income exceeds Rs. 10 lakh, the tax would be Rs. 1.3 lakh plus 30 per cent of the amount by which the total income exceeds Rs. 10 lakh.
Alongside, while senior citizens (above 65) will enjoy additional benefit, women taxpayers will not be accorded special treatment available to them in the IT Act. Asked why the existing preferential treatment for women in terms of a higher exemption limit was sought to be withdrawn, Mr. Mitra said: “We have only promoted greater gender equality. I don't think we can be faulted for this ... It is a Bill in Parliament. It will be discussed and then we will see.”
As for tax incentives to individuals, the exemption on savings as also payment of interest up to Rs 1.5 lakh on housing loan has been retained in the DTC Bill. However, it proposes to do away with tax exemption on the principal amount paid on housing loans. “Tax exemption would not be available on the principal component of housing loans,” Mr. Mitra said.
The existing EEE (exempt-exempt-exempt) incentive for savings schemes would continue to be available for insurance and pension funds up to Rs. 1 lakh. The approved long-term savings schemes listed are provident fund, superannuation fund, gratuity fund and pension fund.
The Bill proposes to retain the zero capital gains tax on listed securities if sold after one year of purchase. As for short-term capital gains tax, it is to be levied at half the rate of income tax payable by the security holder in accordance with his tax bracket. Also, the Security Transaction Tax (STT) of 0.25 per cent is sought to be continued.
Among other important features of the Bill, it proposes to do away with the profit-linked income tax exemptions given to Special Economic Zones (SEZs), but provide some relief to developers and units within the zones by way of investment-linked incentives. Instead of the sunset clause of March 31, 2011, the Bill proposes to extend these benefits to developers if their SEZ has been notified by March 31, 2012. The same benefits will be given to unit holders if their plants start operations by March 31, 2014.
The Bill also proposes to hike the minimum alternate tax (MAT) from 18 to 20 per cent on the book profit of a company against the prevailing rate of 18 per cent plus other levies. It also seeks to levy dividend distribution tax at 15 per cent.
Aimed at consolidating and integrating all direct tax laws and replace them with a single piece of legislation, the Bill seeks to replace the Wealth Tax Act along with the I-T Act.