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  3. Finance Ministry proposes major overhaul in taxation system; floats draft DTC

Finance Ministry proposes major overhaul in taxation system; floats draft DTC

02 Apr 2014 Evaluate

In an attempt to replace the half-a-century-old Income Tax Act and overhaul the taxation system, the finance ministry released a draft Direct Taxes Code (DTC), which recommends the change along with a new income tax bracket that would require rich people to pay higher taxes.

However, the bill fails to provide any relief to the salaried class by retaining personal income tax (IT) exemption limit at Rs 2 lakh, though it has accepted the recommendation that the age for senior citizens be relaxed from 65 years to 60 years. At present, for citizens over 65 years, income tax kicks in at Rs 2.5 lakh, while the cut-off is Rs 2 lakh for the younger population.

The bills mainly targets high net worth individuals and foreign companies. To tax the super-rich, it has introduced a fourth slab of 35 per cent on income exceeding Rs 10 crore. Additionally, the revised draft law proposes that if 20% of the total assets of a company are located in India, then the income arising from such a transaction will be taxed in the country. Notably, previous version of the Bill had said such transactions would be taxed if 50% of the total assets were located in India. The move is to ensure India gets its due when foreign companies buy and sell subsidiaries or units that are based in India. To add to this, those earning over Rs 1 crore through dividend income will now face an additional tax of 10%. Under the Income-tax Act as well as in the DTC Bill, 2010, the dividend distribution tax is to be levied at the rate of 15%.

A new DTC has been in the works since UPA took office in 2004 but surprisingly latest draft comes weeks before its second term comes to an end, thereby raising the prospects of the document being junked when probably a new finance minister takes charge next month.

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