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NEW DELHI, Dec. 23

BOWING to pressure from the BJP, the Kelkar Panel on Direct Taxes has decided to go soft on individual taxpayers. In its final report, the committee has alsoproposed a corporate tax structure which the domestic industry may well be comfortable with.

The committee has recommended a tax deduction of up to Rs 50,000 per annum on interest on housing loans, set-offs for assessees with taxable income between Rs 1 lakh and 2 lakh and continuation of tax rebates for senior citizens (Section 88B) and women (Section 88C). Two personal income-tax rates have been recommended by the panel.

The proposed tax deduction on interest on housing loans would benefit individuals accessing loans up to Rs 5 lakh. The final recommendation is a reversal of the suggestion made in the consultation paper to completely phase out this tax incentive.

"The panel has also recommended set-offs for those with taxable income between Rs 1 lakh and Rs 2 lakh to ensure that their tax liability does not increase," sources said.

The set-offs notwithstanding, the panel has decided to stick to its original proposal of enhancing the annual exemption limit from Rs 50,000 to Rs 1,00,000 and have two rates of personal income tax of 20 per cent and 30 per cent for individual taxpayers. The 20 per cent rate will apply to incomes above Rs 1,00,000 up to Rs 4 lakh. For assessees with annual taxable income exceeding Rs 4 lakh, the panel has recommended a 30 per cent tax rate, besides a flat amount of Rs 60,000.

The only controversial recommendation, which the panel has decided to retain in its final report, is the proposal to bring farm income of non-agriculturists under the tax net. It would propose designing a tax rental arrangement whereby States could pass a resolution under Article 252 of the Constitution authorising the Centre to impose tax on agricultural income and assign it to States.

The reforms package for corporates is set to be attractive, with the panel pitching for lowering the corporate tax rate for domestic companies and foreign companies, abolition of dividend tax and long-term capital gains on equity.

Corporates would, however, reckon with the reality of lower depreciation rates along with the abolition of Minimum Alternate Tax of 7.5 per cent, if the Government decides to implement the final report.

The panel had decided not to tinker with its original recommendation to align depreciation rates in the Income Tax Act with those under the Companies Act, said the sources.

Exporters have reason to rejoice as the panel has decided to recommend continuation of graded tax holiday given to units in Special Economic Zones under Section 10A and 10B of the Income Tax Act. The original consultation paper had recommended abolition of this incentive.

At the same time, however, it will recommend the abolition of the 10-year tax holiday for telecom service providers and other infrastructure facility providers under Section 80IA and 80IB. To off set any disadvantage, the panel will recommend indefinite carry forward of losses and unabsorbed depreciation through relevant changes in the Income Tax Act.

The panel will also recommend abolition of dividend tax at the hands of the shareholders. And neither will there be any tax on distribution of dividends by companies.

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