The delay in implementing the Direct Tax Code (DTC) by a year and clarity on capital gains tax will give breathing space to stock markets, say experts.
The Government on Monday tabled the much-awaited DTC in the Lok Sabha. It is proposed to raise the exemption limit on income tax from the current Rs 1.6 lakh a year to Rs 2 lakh. Instead of April 2011, the DTC will be effective from April 1, 2012, the government said.
Volatility was high during the day. The key benchmark Sensex of the Bombay Stock Exchange, which had opened with gains of over 100 points, slipped into negative territory. It was last traded at 18,032, up 33 points or 0.2 per cent. The S&P CNX Nifty index of the National Stock Exchange was up 6.7 points, or 0.1 per cent, at 5,415.
According to the DTC, the taxation for short-term capital gains will be in three slabs — five, 10 and 15 per cent. Besides, there would be no long-term gains tax. The subject to securities transaction tax will be 0.25 per cent. The DTC Bill has dividend distribution tax of five per cent for both equity mutual funds and unit linked insurance policies.
“A year’s delay in implementing the new DTC will give enough time for markets to understand how the new structure will operate. Also, clarity on short and long-term gains tax is positive. Especially, the decision not to levy any direct tax on long-term capital gains is a very positive move,” said Deven Choksey, managing director of Mumbai-based K R Choksey Share and Securities.
“Shares in Indian markets are under-owned and imposing tax on long-term capital could have been absurd for domestic stock markets. The lack of clarity on taxing of long-term gains was causing chaos among retail investors,” said Kishor Ostwal, managing director of CNI Research.
Currently, income between Rs 1.6-5 lakh attracts 10 per cent tax. It is 20 per cent between Rs 5-8 lakh and 30 per cent beyond Rs 8 lakh.
The proposed tax slabs, too, are much lower than originally suggested in the draft DTC bill — 10 per cent for Rs 1.6-10 lakh; 20 per cent for Rs 10-25 lakh and 30 per cent for income above Rs 30 lakh.
The bill seeks to fix corporate tax at the current 30 per cent but without surcharge and cess. With surcharge and cess, the current tax liability on companies comes to over 33 per cent. The legislation also proposes to increase Minimum Alternate Tax from 18 per cent to 20 per cent of book profit of a company. It seeks to levy dividend distribution tax at 15 per cent.