New Delhi: In what could provide a major
relief to income tax payers, the government on Wednesday proposed to tax only 10 per cent of income up to Rs 10 lakhs while under
the existing regime this relief is limited to people with
income of Rs three lakh only.
Income between Rs 10 lakh and Rs 25 lakh would be taxed
at the rate of 20 per cent and earnings thereafter would
attract a rate of 30 per cent, as per the draft of the new
Direct Taxes Code which is aimed at radical direct tax
reforms. At present, 20 per cent rate is imposed on income
between Rs 3 lakh and Rs 5 lakh. Income beyond Rs 5 lakh
attracts 30 per cent tax.
The Direct Taxes Code was released by the government for
public discourse and when approved it would replace the Income
Tax Act of 1961 and other related laws.
However, the draft proposes to retain the present
ceiling of income tax exemption at Rs 1,60,000 in a year.
It also suggested an increase in tax deduction on
savings of Rs 3 lakh and wanted all perks to be added to
income for taxation purpose.
In what could make India Inc happy, the code also
recommended lowering corporate tax rate by 5 per cent to
25 per cent from the present 30 per cent. Besides, the draft
proposed a change in methodology for computing the Minimum
Alternate Tax (MAT), which is levied on those companies not
paying any tax due to various exemptions.
The companies are at present levied surcharges and
cesses besides corporate tax. Foreign companies attract a tax
rate of 40 per cent.
As regards foreign firms, the draft said, they will
have to pay 25 per cent corporate tax. In addition, they will
have a liability of 15 per cent branch profit tax.
The draft also suggested two per cent MAT on gross
asset value of a company, instead of the current levy of 15
per cent on book profits. In case of banking companies, the
MAT should be 0.25 per cent on the gross assets.
The tax code also suggested abolishing the
controversial Securities Transaction Tax (STT), but wants long
term capital gains tax to be reintroduced.
Releasing the Direct Taxes Code, Finance Minister
Pranab Mukherjee said if reasonable level of discussion
happens on the code, a bill on Direct Taxes Code could be
placed in the winter session of Parliament.
Following are the highlights of the draft of Direct Taxes Code released by the government.
The code is expected to replace the Income Tax Act, 1961
after it becomes a law.