Levies up for women taxpayers, investors in Ulips and SEZ developers.
The Direct Taxes Code (DTC) Bill that was introduced in Parliament today proposes some relief to individuals and companies. But a closer read suggests that women taxpayers, developers of special economic zones and units in these areas, as well as those investing in unit-linked insurance plans, are in for harder times.
The only saving grace is that these individuals and companies will get an additional year’s breather, as the new legislation to replace the Income-Tax Act, 1961, is slated to come into force only from April 2012. Like the Goods and Services Tax, this is again a case of missed deadlines, since the original schedule was to shift to DTC from April 2011.
Under the new regime, companies will pay 30 per cent corporation tax, including cess and surcharge, instead of the present combined levy of 33.2 per cent. Besides, the tax rate for foreign companies will now be the same as domestic companies.
The Bill — the result of two rounds of consultations and factors in 1,600 comments — proposes to increase the exemption limit for individuals from Rs 1.6 lakhs to Rs 2 lakhs. Accordingly, the slabs have also been reworked. Those with a taxable income of Rs 2-5 lakhs will be taxed at 10 per cent; those in the Rs 5-10 lakhs bracket will have to pay 20 per cent; while taxable income of over Rs 10 lakhs will attract a 30 per cent levy.
Though this is lower than what was proposed in the first discussion paper released last August, exemption on saving instruments, which were proposed to be withdrawn, has been retained. In fact, there have been a few additions to the list such as investment in the New Pension Scheme.
Senior citizens are in for some relief, but ‘gender equality’ has meant that the additional exemption limit so far available to women taxpayers will be withdrawn once DTC comes into effect.
By widening the ambit of the minimum alternate tax (MAT), the government is hoping to make up for some revenue loss caused by giveaways to individuals (Rs 14,343 crores) and companies (Rs 38,829 crores). Despite this, tax buoyancy will come to the aid of the exchequer.
Against the budgeted direct tax collection of Rs 4,29,000 crores in the current financial year if the present tax regime continued, the Centre expects to garner Rs 5,80,417 crores in 2012-13 when DTC kicks in. With relief to taxpayers, it now hopes to collect around Rs 5,27,000 crores, said revenue secretary Sunil Mitra.
The reworked slabs are expected to benefit a majority of taxpayers.
Of the 32.5 million of them, 96 per cent are in the '1-5-lakh bracket. These taxpayers pay around 30 per cent of the direct taxes. Mitra said 2.2 per cent of taxpayers, who have a taxable income of over '8 lakhs, account for 60 per cent of the Centre’s direct tax collections, with the remaining 10 per cent coming from those in the '5-8-lakh bracket.
Finance Minister Pranab Mukherjee told Business Standard that the Bill contains various provisions that would help individuals save on tax. He added the Bill would be referred to a standing committee of Parliament, against the earlier plan to refer it to a select committee comprising members only of the Lok Sabha.
Tax experts said to discourage people from purchasing Ulips and equity-linked savings schemes, exemption limits have been reworked in the DTC Bill. Going forward, investments of up to '1 lakh in provident fund, public provident fund, and pension schemes will be exempt. A further exemption of '50,000 will be available for health and life insurance premia and tuition fees.
However, if you hold insurance policies, where over 65 per cent of the premium is used to buy equity shares, or equity-oriented mutual funds, the government intends to levy a 5 per cent tax on income distributed by the fund house or the insurer.
For companies paying MAT, there is relief in the form of a continuation of the system of assessment on book profits. While MAT credit can be carried forward for 15 years, the rate is being increased to 20 per cent from 19.93 per cent, including cess and surcharge.
TWO SIDES OF A COIN
PAIN
# Women will not get any additional tax benefits
# Fund houses face 5% tax on distribution income for Ulips, equity-linked MFs
# SEZ developers face tax burden starting April 2012
# More non-profit firms will come under the tax net
# Area-based incentives and some of the sectoral sops will be discontinued
GAIN
# Savings of up to '41,000 for those earning '10 lakh
# Foreign companies to pay tax at the same rate as local companies
# Corporate tax rate lowered from 33.2% to 30%
# Short-term capital gains rationalised
# No tax on maturity amount of New Pension Scheme at the time of withdrawal
“It appears that there is no provision for carry forward of MAT credit available under the existing Income-Tax Act, which may result in hardship to taxpayers. The only relief granted is MAT credit paid under DTC will be available up to 15 years, unlike 10 years available under the Income-Tax Act,” said Sunil Shah, a partner at Deloitte Haskins & Sells.
PERSONAL INCOME-TAX RATES
Rate
Now
Proposed
10%
1.6-5
2-5
20%
5-8
5-10
30%
8 & above
10 & above
Amount in Rs lakh
l Corporate Tax of 30% will apply to both foreign and domestic firms
l MAT: Will rise from 19.93% to 20%
In the case of SEZ developers, the government has decided to limit profit-linked benefits for zones that are notified after March 2012. In case of units, the cut-off date has been fixed as March 2014. SEZ developers and units are also included under the MAT regime under the DTC.
In order to garner more resources from fund houses that have a bulk of assets under management in debt schemes, the government proposes to increase the tax rate for them from the present 25 per cent to 30 per cent, which is the corporation tax rate. Nearly three-fourths of the '8,00,000-crore average assets under management are in debt-oriented schemes.
With reference to the statements that "the new legislation to replace the Income-Tax Act, 1961, is slated to come into force only from April 2012 and that like the Goods and Services Tax, this is again a case of missed deadlines, since the original schedule was to shift to DTC from April 2011", it may be observed that while the States' failure to arrive at a consensus can be advanced as the reason for the postponement of the GST Bill, the Centre is unable to find a scapegoat for delaying the implementation of the DTC Bill. We may pray the Almighty that it will not meet with the same fate of Income-tax Bills of 1993 and 1997. Incidentally, the opening statement: "levies up for women taxpayers" is incorrect. Provision for additional exemption (now Rs.30,000) for the fair sex, inserted by an earlier Finance Minister, is proposed to be dropped only, so that there is level-playing field between the sexes.
Whereas the Bill proposes to increase the tax exemption limit from Rs.160k to Rs.200k, and tax-free medical expense reimbursement limit from Rs.15k to Rs.50k for individuals, "senior citizens are in for some relief" (from Rs.240k to Rs.250k only). It is suggested that the exemption limit in their case be enhanced from Rs.240k to Rs.300k, to take care of old-age, which is characterized by sickness.
Content Guide
The Direct Taxes Code (DTC) Bill that was introduced in Parliament today proposes some relief to individuals and companies. But a closer read suggests that women taxpayers, developers of special economic zones and units in these areas, as well as those investing in unit-linked insurance plans, are in for harder times.
