The Finance Ministry has rejected the recommendation of the Parliamentary Standing Committee, headed by former Finance Minister Yashwant Sinha, on raising the income tax exemption limit to Rs.3 lakh. The recommendation was made as part of the Committee’s report on the Direct Taxes Code (DTC). Adjusting the slabs will cause tax revenue losses to the tune of Rs.60,000 crore a year to the Exchequer, the Ministry has said. It has, however, agreed to the recommendation on reducing the age for tax exemption for senior citizens from 65 years to 60 years. The Ministry has also rejected the recommendation on inflation-proofing the tax exemption.
The Finance Ministry released the proposed Direct Taxes Code-2013 on Tuesday. Of the 190 recommendations made by the Committee, the Finance Ministry has accepted 153 either wholly or with partial modifications. In his budget speech in February, Union Finance Minister P. Chidambaram had said that the government would seek public opinion on the revised DTC. Earlier, the UPA Government had introduced the DTC Bill in the Lok Sabha in 2010, and later referred it to the Committee. The revised DTC Bill will now be re-introduced in Parliament by the next Finance Minister post-elections.
The Parliamentary Committee had proposed no tax on income up to Rs.3 lakh per annum; at the rate of 10 per cent for Rs.3-10 lakh; 20 per cent for Rs.10-20 lakh; and 30 per cent on annual income beyond Rs.20 lakh. At present, there is no tax on income up to Rs.2 lakh per annum. Income of Rs.2-5 lakh attracts tax at the rate of 10 per cent, 20 per cent on Rs.5-10 lakh and 30 per cent on income beyond Rs.10 lakh.
The revised DTC provides for a fourth slab for individuals, HUFs (Hindu Undivided Families) and artificial judicial persons with a view to maintaining overall progressivity in the levy of income tax. If their total income exceeds Rs.10 crore, it is proposed to be taxed at the rate of 35 per cent under the revised DTC. The revised DTC also said income from a house property, which is not used for business or commercial purposes, would be taxed under the head ‘income from house property’.
The recommendations accepted include those pertaining to simplifying the structure and the content of the DTC for making it more user-friendly, and, at the same time, “ensuring tax buoyancy by tapping high capacity/income and evasion prone segments”.
The recommendations the Ministry has rejected include the one on retaining the rate of taxation for life insurance companies at 15 per cent against the proposed 30 per cent and abolishing the Securities Transaction Tax (STT).
The Ministry has said that the revised DTC captures all assets for Wealth Tax. The rate for the Wealth Tax is proposed (for individuals, HUFs and private discretionary trusts) at 0.25 per cent. The threshold for the levy in the case of individual and HUF is proposed at Rs.50 crore.
The draft Code also does away with the Settlement Commission as it has “not achieved the intended purpose of early settlement of cases and additional revenue realisation”.
The DTC Bill, 2010, had provided for a 50 per cent threshold of global assets to be located in India for taxation. “This threshold is too high. There could be a situation that a company has 33.33 per cent assets in three countries but it will not get taxed anywhere. Accordingly, the revised Code provides for a threshold of 20 per cent of global assets to be located in India for taxation...” it said.
Government will seek public opinion on the revised Direct Taxes Code