Cabinet likely to consider DTC Bill on Thursday

Struggling to meet the deadline of introducing a much-awaited tax reforms Bill, the Cabinet is likely to consider the Direct Taxes Code (DTC) on Thursday, a move aimed at rationalising rates and improving tax compliance.

A proposal is before the Union Cabinet for consideration and passage of the DTC Bill, a source told PTI.

The government plans to introduce DTC, which will replace the archaic Income Tax Act, from next fiscal. The government is, however, unlikely to meet the deadline for introduction of yet another important piece of tax reforms - the Goods and Services Tax.

If introduced in the monsoon session that ends on August 31, the DTC Bill is expected to be referred to a Parliamentary Standing Committee on finance and may be passed during the winter session to make the reforms effective from the deadline -- April 1, next year.

Revenue Secretary Sunil Mitra told reporters at a CII event today that he expects the the Bill to be introduced in Parliament in the ongoing monsoon session that ends August 31.

"We do expect the DTC to be introduced in Parliament in this session," Mitra said.

Finance Minister Pranab Mukherjee in his Budget speech had indicated the Centre's intention to bring DTC, which will rationalise tax rates to improve collections, into effect from April 1, 2011.

A draft of the DTC was released in August last year and a revised draft in June this year for comments from the industry and other stakeholders.

DTC aims at reducing tax rates, but expanding the tax base by minimising exemptions.

Recently, Central Board of Direct Taxes Chairman S S N Moorthy indicated that taxpayers may get relief in terms of tax rates in the proposed DTC.

"We are in the process of reducing the rate of tax and DTC will be a good example in that direction," Moorthy had said.

In the first DTC draft, the government had proposed a substantial widening of the tax base. It had suggested imposing 10 per cent tax on income of Rs 1.6 lakh-Rs 10 lakh, 20 per cent on income of Rs 10 lakh-25 lakh and 30 per cent beyond Rs 25 lakh in a year.

The proposed tax slabs were even substantially wider than the increase in the Budget 2010-11. The Budget imposed 10 per cent tax on income of Rs 1.6 lakh-5 lakh, 20 per cent on Rs 5 lakh-8 lakh and 30 per cent on over Rs 8 lakh in a year.

However, the revised draft on DTC did not talk about tax rates and Finance Ministry officials said the slabs given in the first draft were just illustrative.

The second draft also said that the rates proposed in the first draft could be calibrated, after dropping a contentious proposal for taxing long-term savings like provident funds at the time of withdrawal.