Persons earning Rs 10 crore or more a year may be taxed at a higher rate of 35 per cent on their income, if changes being contemplated in the Direct Taxes Code are accepted by the Government.
The Finance Ministry plans to add one more slab to tax the super rich, in addition to the four existing tax slabs. Finance Minister P. Chidambaram had earlier announced a surcharge of 10 per cent on persons whose taxable income exceeds Rs 1 crore a year, in the Budget.
This, along with a tax-break for contributions made to political parties, are among the provisions of the revised DTC that is likely to be considered by the Cabinet on Thursday.
“Once approved, the Government intends to approve the direct taxes code during the ongoing Parliament session. However, it is unlikely that this Bill will get passed in the remaining days of the session. So, we will have to wait for the winter session to get the Parliamentary nod,” a senior Government official told Business Line. The plan is to implement the new system from April 1, 2015.
The revised code is likely to retain corporate tax rate of 30 per cent.
Among the new deductions proposed, for contributions to political parties, five per cent of the gross total income from ordinary sources would be allowed towards deduction, which may encourage greater public funding by corporates and individuals. Similarly, interest paid on loans for higher education can also be deducted for eight years.
The official also said that besides life insurance, health insurance and school tuition fees, tax benefit will also be available for investment in equity-linked saving schemes, Rajiv Gandhi Equity Savings Scheme and expenditure on treatment of the disabled.
However, according to another senior official, some of the key recommendations of the Standing Committee on Finance have not been accepted. One such recommendation was a re-jig of the tax slabs by raising the lower slab limit to Rs 3 lakh from Rs 2 lakh.
“Such a change may cause of a revenue loss of Rs 60,000 crore, that is why it was not accepted,” the official said.
Similarly, the suggestion to abolish Securities Transaction Tax (STT) has also not been accepted. The argument here is that STT rates have been lowered significantly.
Another proposal related to levy of dividend distribution tax in the hands of policy holders has also not been accepted.