Unlike the Constitution Amendment Bill on the proposed Goods and Services Tax (GST) which remains mired in confusion and controversy owing to the delicate question of infringing on the fiscal autonomy of States in indirect taxation, the Direct Taxes Code (DTC) Bill is on course for implementation from April 1, 2011.
Apart from the fact that direct taxes is the sole prerogative of the Centre without any direct involvement of the States, the just-in-time Cabinet nod for the DTC Bill has set in motion the procedure for the legislative process.
After its introduction in the Lok Sabha during the current session, expected on Monday next week, the Bill is to be referred to a select panel of the two Houses for approval and taken up for enactment during the winter session.
However, the DTC Bill too, has had to go through approval and vetting by all stakeholders, including individual taxpayers, India Inc. and various financial analysts. And consequently in its current format, it has undergone various changes.
For one, the first draft had suggested 10 per cent tax on income of Rs. 1.60-10 lakh, 20 per cent on income of Rs. 10-25 lakh and 30 per cent beyond that. Alongside, however, it had suggested tax on some of the long-term saving and investment avenues such as provident fund which currently enjoy tax relief even at the time of withdrawal.
Since status quo had to be restored on these schemes, the expected revenue thus foregone has to be made up. Little wonder that Finance Ministry officials later sought to explain that the tax rate slabs indicated in the first draft were merely illustrative. For the present also, Finance Minister Pranab Mukherjee has noted that it is the Parliament that would decide on the tax slabs.
Be that as it may, the new tax slabs are expected to provide some relief to all taxpayers as compared to the existing rates. At present, income between Rs. 1.65 lakh and Rs. 5 lakh attracts 10 per cent tax, while the rate is 20 per cent for the Rs. 5-8 lakh bracket and 30 per cent for above Rs. 8 lakh.
On the corporate tax front also, Mr. Mukherjee indicated that the levy is sought to be retained at the existing level of 30 per cent, but without any surcharge or cesses on it. This again, evidently, is owing to the changes that had to be carried out on the issue of MAT (minimum alternate tax).
The Bill seeks to impose MAT at 20 per cent of the book profit as against 18 per cent being levied currently. The first DTC draft had proposed to impose MAT on assets but owing to sharp criticism from industry, the levy is to be maintained on book profit, as now.
As for the long-term investment schemes, the revised draft has withdrawn the proposal of taxing savings like PF at the time of withdrawal.