Direct Taxes Code Bill not in favour of raising lowest income tax slab

The country’s super-rich may end up paying more tax on their earnings if the recommendations in the draft Direct Taxes Code Bill, 2013, become a reality.

A week ahead of the general elections, the Centre has suggested imposing additional tax on the super-rich, while rejecting a proposal to raise the lowest slab of income tax to ₹3 lakh annually.

The draft Direct Taxes Code Bill, 2013, was put in the public domain on Tuesday.

The Government cannot make any legislative changes to the tax structure but has prepared the base for the new Government to usher in a new income-tax regime.

The original Direct Taxes Code Bill, 2010, will lapse with the end of the 15th Lok Sabha and the new Government will have to initiate the process for the introduction of the Bill.

“With a view to maintain overall progressivity in levy of income tax, the revised Code provides for a fourth slab for individuals, Hindu Undivided Families (HUFs) and artificial juridical persons. In their case, if the total income exceeds ₹10 crore, it is proposed to be taxed at the rate of 35 per cent,” the draft said.

There is an additional surcharge of 10 per cent on income exceeding ₹1 crore. This was to end on March 31, but the interim Budget extended this to the current fiscal year, too.

However, the Finance Ministry has not accepted a recommendation from the Standing Committee on Finance, headed by senior BJP leader Yashwant Sinha, on revising the tax slabs.

The Committee favoured revising the slab with no tax on income up to ₹3 lakh (now ₹2 lakh), 10 per cent on income between ₹3 lakh and ₹10 lakh (₹2-5 lakh), 20 per cent on ₹10-20 lakh (₹5-10 lakh) and 30 per cent for income beyond ₹20 lakh (now ₹10 lakh and above).

“The recommendation is not acceptable as it will result in huge revenue loss. The total revenue loss on account of recommended changes in personal income tax slabs and revenue of cess worked out to ₹60,000 crore,” the draft said.

The draft has retained the ‘controversial’ dividend taxation provision.

There is a 10 per cent additional tax on the recipient if the total dividend in his hand exceeds ₹1 crore. Under the present regime as well as the one proposed by the original DTC in 2010, dividend distribution tax is to be levied at the rate of 15 per cent.

This, as the draft argues, favours high net-worth taxpayers who only pay a fraction of their earnings as tax on their investments in the capital market.

Interestingly, provisions such as tax on the super-rich and on dividend were part of the official amendments to the Direct Taxes Code Bill brought before the Cabinet last August. But due to strong objections on these two provisions, the Cabinet deferred considering official amendments in the Bill.

(This article was published on April 1, 2014)
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