Parliament’s standing committee of finance today gave its report on the government’s bill to enact a new Direct Taxes Code (DTC) to Lok Sabha Speaker Meira Kumar. It has suggested much wider tax slabs and tax breaks than recommended by the legislation, for individual payers. No changes were suggested for corporate tax.
Officials said after the report is formally tabled in Parliament’s coming session, the finance ministry may table a revised bill in the next, monsoon session. The DTC is expected to take effect from April 1, 2013.
Chaired by the Bharatiya Janata Party’s Yashwant Sinha, a former finance minister himself, the panel has favoured a 10 per cent rate for annual income of Rs 3-10 lakh, those in the know told Business Standard. The Bill proposes this rate be imposed on a slab of Rs 2-5 lakh.
The panel also recommended a 20 per cent income tax rate be paid by those earning Rs 10-20 lakh a year. This slab was proposed to be Rs 5-8 lakh in the Bill. The committee wanted the government to impose a peak rate of 30 per cent on annual income above Rs 20 lakh, as against above Rs 10 lakh sought in the Bill.
Currently, yearly income of Rs 1.8-5 lakh attracts 10 per cent income-tax, Rs 5-8 lakh attracts 20 per cent and above Rs 8 lakh attracts 30 per cent. The committee also recommended changes in tax exemptions given for long-term savings, medical insurance and social security contributions.
It wanted the government to increase the long-term savings limit for the purpose of exemption from income tax to Rs 1.5 lakh from Rs 1 lakh. It has suggested that contribution to social security such as pension be exempted up to Rs 1.5 lakh a year; medical insurance up to Rs 1 lakh; up to Rs 50,000 medical insurance for dependent parents, and Rs up to 50,000 for professional studies and education be exempted from income tax.
The CPI (M)’s Moinul Hassan gave a dissent note on the committee's calling for expanding the tax net and reducing exemption.
The panel also wanted the government to cautiously implement the General Anti-Avoidance Rules. These provisions in the Bill are aimed at authorising the tax department to demand tax in situations where the main motive of a transaction is to get a tax advantage. These provisions have assumed importance after the government lost the Vodafone case in the Supreme Court. Many believe the coming Budget proposals may incorporate this, even before introduction of the DTC. While the Bill puts the onus on those involved in a deal to prove they have not intended to avoid tax, the committee recommends it be the other way round.