Primer | The many faces of DTC Bill

Bill to tabled in Parliament's monsoon session; current rates of 10, 20 and 30% on income tax might not be changed

Finance Minister P Chidambaram might have modified some of Pranab Mukherjee’s decisions but he could toe his predecessor’s line on the Direct Taxes Code (DTC) Bill. This means taxpayers might continue to enjoy exemption on maturity of their investments and industry could pay Minimum Alternate Tax (MAT) on book profits, instead of gross assets.

 

The DTC Bill, to be tabled in the monsoon session of Parliament, is understood to be closer to the version put up by Mukherjee before Parliament’s standing committee on finance, headed by Yashwant Sinha, in 2010 — that is, a watered down version of the original proposal prepared by Chidambaram during his previous stint finance minister, in 2009. 

The ministry might not accept the parliamentary panel’s recommendation of raising the yearly income tax exemption limit to Rs 3 lakh from Rs 2 lakh at present. Its worry is that raising this limit will not only lead to loss of revenue (in giving tax benefit to people in all slabs) but also take many people out of its scrutiny and erode the tax base, now already low at 34 million. If the slab is increased to Rs 3 lakh, 87% of taxpayers will escape annual net.

 

Instead, the government might consider giving relief to taxpayers in the lower tax bracket — like it did in Budget 2013-14. A tax credit of Rs 2,000 was provided to every person with up to Rs 5 lakh the income, benefitting 18 million taxpayers. This meant a hit of Rs 3,600 crore to the exchequer. But, if the exemption limit is increased to Rs 3 lakh, the loss will be Rs 30,000 crore.

 

Some widening of slabs could be considered but it might just be marginally higher than the current slabs of Rs 0-2 lakh, Rs 2-5 lakh, Rs 5-10 lakh and Rs 10 lakh & above.

The standing committee had suggested four slabs of up to Rs 3 lakh, Rs 3-10 lakh, Rs 10-20 lakh and Rs 20 lakh & above, and said these should move with inflation. But the finance ministry might not accept that. The current rates of 10, 20 and 30 per cent on income tax might not be changed.

Draft-I 

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(Prepared by P Chidambaram)
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PERSONAL  I-T Slabs

.  Rs 1.6-10 lakh
. Rs 10-25 lakh
. Rs 25 lakh and above 

Corporation Tax 
. 25%

MAT
. On gross assets

Savings
. Exempt-Exempt-Tax

Capital gains tax

. Distinction between short-term and longterm assets eliminated; STT abolished

SEZs

. Profit-linked deductions for SEZ developers protected for unexpired period, but not for units


Draft-II 

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( Prepared by Pranab Mukherjee )
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PERSONAL  I-T Slabs
.  Rs 2-5 lakh
. Rs 5-10 lakh 
. Rs 10 lakh and above

Corporation Tax 
. 30%

MAT
. On book profits

Savings
. Exempt-Exempt-Exempt

Capital gains tax

. Distinction retained but deductions allowed for some long-term assets; STT retained

SEZs

. To grandfather tax holiday for existing SEZ units, as well as developers

Draft-III 

Yashwant Sinha

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( Recommendations of Standing Committee (headed by Yashwant Sinha )
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PERSONAL  I-T Slabs

.  Rs 3-10 lakh 
. Rs 10-20 lakh 
. Rs 20 lakh and above

Corporation Tax 
. 30%

MAT
. On book profits

Savings
. Exempt-Exempt-Exempt
 

Capital gains tax

. Remove the distinction; abolish STT

SEZs
. Recommend suitable grandfathering provisions for a smooth transition