Cabinet approves DTC, Will benefit taxpayers, Home Loan Interest exemption will continue

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Cabinet approves DTC, Will benefit taxpayers, Home Loan Interest exemption will continue

Aug 27, 2010 Income Tax

Individuals and companies can expect some relief in the Direct Taxes Code (DTC), with the government planning to widen personal income-tax slabs, enhance the exemption limit and remove levies on corporate tax. This comes with the Cabinet clearing the Direct tax code which will be introduced in Rajya Sabha, and referred it to a select committee, during the monsoon session.

It has been referred to the Select Committee, and will be introduced in Rajya Sabha on Monday.

The proposed slabs are, however, a climb down from what was proposed in the first discussion paper on DTC, released last August. The government had then proposed to do away with most exemptions, including savings instruments, by taxing them at the time of withdrawal. But bowing to pressure, the government dropped the plan.

PERSONAL INCOME TAX
(Amount in ' lakh)	10%	20%	30%
Now	1.6-5	5-8	8 & above
DTC I	1.6-10	10-25	25 & above
Likely	2-5	5-10	10 & above
# Exemption limit to be raised from '1.6 lakh to '2 lakh # Further relief for women, senior citizens expected # Corporation tax rate stays at 30%, but no cess or surcharge proposed # MAT rate to be raised from 18% to 20% of book profits

The limit for exemptions for salaried people is Rs. 2 lakh, while that for senior citizens is Rs. 2.5 lakh.

The earlier DTC draft had proposed to reduce the corporate tax to 25 per cent from the present 30 per cent but the revised direct tax code has been kept the same at 30%.

Also, unlike the original proposal that sought to impose minimum alternate tax (MAT) on gross assets, which drew strong criticism, the government has now decided to continue with the system of levying MAT on book profits. The MAT rate is, however, proposed to be increased from the present 18 per cent to 20 per cent.

The new Code comes into effect from April, 2011.

After the approval of the Cabinet, the decks are cleared for tabling the legislation in the Monsoon Session of Parliament so that the new Act ushering in reduced tax rates and exemptions may come into effect from next fiscal.

When enacted, the Code will replace the archaic Income Tax Act and simplify the whole direct tax regime in the country.

The Code aims at reducing tax rates, but expanding the tax base by minimising exemptions.

The Finance Ministry had earlier come out with a draft on the (Direct Tax Code) DTC bill, some of whose provisions drew strong criticism from industry as well as the public.

To address those issues, the ministry brought out the revised draft, dropping earlier proposals of taxing provident funds on withdrawal and levying Minimum Alternate Tax on corporates based on their assets.

"As of now, it is proposed to provide the EEE (Exempt-Exempt-Exempt) method of taxation for Government Provident Fund (GPF), Public Provident Fund (PPF) and Recognised Provident Funds (RPF) …", the revised DTC released by theFinance Ministry said.

The revised draft also puts pensions administered by the interim regulator PFRDA, including pension of government employees who were recruited since January 2004, under EEE treatment.

The first DTC draft had proposed to tax all savings schemes including provident funds at the time of withdrawal bringing them under the EET (Exempt-Exempt-Tax) mode.

Under the EEE mode, the tax exemption is enjoyed at all the three stages – investment, accumulation and withdrawal.

The revised proposal has also made it clear that tax incentives on housing loans will continue. Payment on interest on housing loans up to Rs. 1.5 lakh will continue. The earlier draft was silent on housing loans.

Read more: http://www.taxguru.in/income-tax/cabinet-approves-dtc-will-benefit-taxpayers-home-loan-interest-exemption-will-continue.html#ixzz0xofo4Eac

Read more: http://www.taxguru.in/income-tax/cabinet-approves-dtc-will-benefit-taxpayers-home-loan-interest-exemption-will-continue.html#ixzz0xofcrYM2

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