Friday, November 15

DTC wind again in the air, DTC bill likely to be tabeled in winter session

In a time when high inflation is blowing holes in pockets of consumers, if a relaxation is granted on tax deduction, consumers will definitely get a reason to celebrate. Well, Ministry of Law and Justice has approved the proposal to raise annual income tax exemption limit from 2 lakh to 3 lakh.

The Direct Tax Code (DTC) draft will now be sent to Cabinet for approval. Thereafter, the approved draft will be introduced in Parliament. According to an official of Ministry of Finance, Parliamentary Committee has nearly agreed to the tax exemption limit under the latest draft of future DTC bill.

The proposal was first drafted by the standing committee led by former Finance Minister Yashwant Sinha. The committee had raised the cap of annual tax exemption from Rs. 2 lakh to Rs. 3 lakh. Moreover, the committee has recommended maintaining the tax percentage at 10% for income group earning annual pay up to Rs. 10 lakh.

Current tax rates

Currently, income tax rate for income group of Rs. 2–5 lakh is 10%. Professionals earning annual income of Rs. 5–10 lakh are required to pay an income tax of 20%. Finally, the income group of Rs. 10 lakh above must 30% of their income as tax to the government.

Way through the Parliament

The DTC draft is expected to be introduced to the Winter Parliamentary Session commencing on 5 December. If the government is indeed keen to consider the DTC bill, it has to be introduced while the winter session. The bill shall not be delayed post the coming session, because in the following session Budget shall be presented to secure ‘vote on account’.

Finance Ministries

Three drafts of the DTC bill have already been prepared so far. The first draft was charted by P Chidambaram back in 2009, when he held the position of Finance Minister. The Ministry was however dissolved after that as the Ministry was taken over by Pranab Mukherjee. Mukherjee charted a fresh draft; however, neither of the two drafts could be taken forward.

Chidambaram is now a Finance Minister again and Pranab Mukherjee is now President of India. The Finance Minister has prepared a new draft on the proposal. It is now to be seen how far the proposal proceeds as there is little time left in general elections 2014.

Super Rich Category

The super rich may have something to cheer about. The finance ministry, which is all set to introduce amendments to the Direct Tax Code (DTC) in the Parliament in the winter session, is likely to withdraw or at least dilute the provision of the additional tax slab of 35% on those earning more than Rs10 crore annually, which is contained in the recommendations. The code seeks to overhaul the Income Tax Act, 1961 and widen the tax base.

The DTC has been on the drawing board for the last couple of years and the bill was introduced in Parliament in 2010. In March last year, Parliamentary Standing Committee on Finance headed by ex finance minister Yashwant Sinha gave its recommendations on the bill. Since then, the finance ministry has been working on amendments to be introduced in accordance with the recommendations – an exercise, which officials concede is now over. The changes, however, could not pass the cabinet muster in August this year.

A senior finance ministry official told dna on condition of anonymity, “A section of the government was not comfortable with the provision of introducing 35% taxation on earnings of Rs10 crore or above. The ministry has revisited the matter among others and we will approach cabinet so that the amendments go to Parliament. We are looking at introducing the amendments in the winter session.”

The finance ministry had planned to introduce the amendments to the DTC in the monsoon session, but could not do so because of the cabinet red flag.

The other provisions contained in the code are for the setting up of a special court for black money cases, wealth tax of .25% for those having net worth in upwards of Rs50 crore, and disincentive on keeping houses vacant by owners.

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