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| Cabinet may discuss DTC Bill today |
| BS Reporter / New Delhi Aug 26, 2010, 01:10 IST |
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The Union Cabinet is expected to discuss tomorrow the Direct Taxes Code (DTC) Bill, which seeks to overwrite the Income Tax Act of 1961.
A senior finance ministry official said that the Bill, which has been in the works since 1997, if approved by the Cabinet, is likely to be tabled in Parliament on Monday. The government is hoping for the passage of the Bill by March so that the new regime can be in place by April 2011.
While the revenue department has outlined the broad contours of the Bill, there are three areas on which a review is expected. The contentious areas include taxation of special economic zones (SEZs), capital gains and unit-linked insurance plans (Ulips). In addition, given that the government has decided to continue with a host of tax exemptions, such as those available for personal income-tax, the tax slabs would also be changed to reflect the new reality.
So, instead of the 30 per cent rate applying to those earning Rs 25 lakh or more, the tax department is expected to settle for a lower limit of up to Rs 15 lakh. In the second draft, where the exemptions were proposed to be retained, the tax rates were not mentioned.
It had also proposed withdrawing exemptions on investment in SEZs after April 2011. At present, units in SEZs enjoy 100 per cent tax exemption on their income for the first five years, 50 per cent in the next five years and another 50 per cent on re-invested profits in the following five years. SEZ developers get 100 per cent tax exemption on profits for 10 years, which can be used in the first 15 years. Due to these tax sops, the finance ministry had to forgo revenue worth Rs 5,266 crore in 2009-10.
DTC had also proposed to treat capital gains from stocks and equity funds as part of ordinary income. At present, no capital gains tax is paid on long-term gains. Income arising through sale and purchase of securities to foreign institutional investors (FIIs) was also proposed to be taxed under capital gains. This suggestion was opposed by FIIs because currently it is treated as business income of a foreign company.
Another widely opposed proposal of the draft DTC was to impose-tax on Ulips. It had proposed to tax exempt provident fund, new pension system, approved pure life insurance products and annuity schemes at the withdrawal stage, but Ulips were kept out of this exemption.
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