DTC may undergo a makeover under new govt

Yashwant Sinha asks bureaucracy to wait for 'political guidance'

Finance Minister P Chidambaram showed his commitment to the Direct Taxes Code (DTC) by releasing a revised draft of the Bill ahead of the elections, but its fate is in limbo as a non-UPA government might review it afresh or make significant changes to the current draft.

Experts said technically, Chidambaram has completed most of the major steps towards replacing the archaic Income Tax Act of 1961 and if the new government is on the same page, it would, at most, be required to refer the Bill to a select committee after tabling it in Parliament. However, the possibility of a new government junking this version of DTC or incorporating a Parliament standing committee recommendations on exemptions is not ruled out. “The timing (of inviting comments on the draft) is entirely misplaced. What do they hope to achieve? My advice to the bureaucracy is to wait for political guidance,” said senior Bharatiya Janata Party (BJP) leader Yashwant Sinha. The Standing Committee on Finance Chairman, however, added the BJP was in favour of a new direct tax law, as the current legislation had become complex after amendments over the years.

Some finance ministry officials and tax experts, however, said DTC in its current form does not serve any purpose as most of the things it proposed initially, such as General Anti-Avoidance Rules, Advance Pricing Agreements, have been incorporated in the Income Tax Act over the last couple of years.

“No policy is cast in stone. The future of DTC will depend on new economic realities and polices of the next government,” said a finance ministry official, adding the law could be simplified by amending the I-T Act.

Inviting comments on the revised draft of the DTC Bill on Tuesday, the finance ministry had proposed a 35 per cent tax on those earning more than Rs 10 crore, while turning down a Parliamentary Standing Committee recommendation on widening of tax slabs.

While it said widening the slabs was not possible as it would lead to a revenue loss of Rs 60,000 crore, Sinha said deciding the exemption limit should be the prerogative of the next government.

Another major proposal in the revised draft was to make a company liable to tax in cases of indirect transfers like Vodafone, if 20 per cent of its global assets are in India.

“Simplicity is certainly not one of the major features of any of the versions of DTC. The next government at the Centre should be allowed a say in the re-packaging of DTC as the extant DTC Bill lapsed at the end of last session of Parliament,” said Sunil Jain, Partner, J Sagar Associates.

He said the next government should decide the design and construct of a new I-T law and provide more clarity on how indirect transfers would be taxed in India.

Even if the new government accepts the current version and gets it cleared in Parliament in 2014-15, the earliest the legislation can be introduced is April 2016, as one year is needed for framing the rules.