The Union Cabinet might pave the way for imposition of a higher tax rate of 35 per cent on the ‘ super rich’ — those with income of more than Rs.10 crore a year — as it takes up the amendments to the Direct Taxes Code ( DTC) Bill, 2010, on Thursday. If the Cabinet gives its go ahead, the much- awaited amendments could be tabled in the ongoing session of Parliament. The amendments seek to have four tax slabs for personal income. Taxpayers might not get any breather in the form of higher exemption limit, as the proposal of the standing committee on finance to widen tax slabs has not been incorporated.
The Parliament panel had suggested raising the exemption limit to Rs. 3 lakh, from the current Rs.2 lakh ( excluding senior and very senior citizens). The finance ministry’s worry is that raising this limit will not only lead to loss of revenue but will take many people out of its scrutiny, thereby eroding the tax base, already low at 34 million. If the slab is increased to Rs. 3 lakh, 87 per cent of the taxpayers will escape tax net. The current slabs are Rs.25lakh, Rs.5- 10 lakh and Rs.10 lakh & above.
The standing committee on finance had suggested three slabs — Rs.310 lakh, Rs.10- 20 lakh and Rs.20 lakh & above — and said these should move with inflation. But the proposed amendments are not likely to include that. The current rates of 10, 20 and 30 per cent on income- tax might not be changed. In Budget 2013- 14, Finance Minister P Chidambaram had imposed a surcharge of 10 per cent on those earning at least Rs.1 crore in a year. He had said this was a one- time tax on the wealthy to help the economy tide over a difficult fiscal situation.
There are only 42,800 people in the country who earn more than Rs.1 crore; those earning over Rs.10 crore a year would be even fewer. Officials said the DTC Bill was likely to give an impetus to growth and investment by the corporate sector, but might not have much for individual taxpayers, because of the limited fiscal space available with the government. The finance ministry is learnt to have accepted more than 150 of the 190 recommendations of the committee, headed by BJP leader Yashwant Sinha.
Finance Minister P Chidambaram has broadly gone with the 2010 version of the Bill, tabled in Parliament by his predecessor Pranab Mukherjee, instead of reverting to his own version of 2009. This means taxpayers might continue to enjoy exemption on maturity of some of their investments and industry could pay Minimum Alternate Tax (MAT) on book profits, instead of gross assets.
Some of the provisions of the DTC Bill, such as the General Anti- Avoidance Rules and Advance Pricing Agreements, have already been incorporated in the Income Tax Act. When enacted, the DTC Bill, one of the two major tax reforms — the other one being Goods and Services Tax — will replace the