New Delhi: In a sigh of relief to the salaried class, the government has dropped the contentious proposal to tax provident and pension funds withdrawls and decided to continue with the major tax incentive on housing loans.
In the revised Draft Taxes Code (DTC), which will replace the 50-year-old Income Tax Act, the Finance Ministry decided to drop its earlier proposal to tax the Government Provident Fund or the Public Provident Fund withdrawls.
"In the absence of adequate social security benefits, taxation of withdrawls from retirement benefits would be harsh," says the revised DTC.
It also said that the proposal to bring in perquisites like government accommodation to be part of salary has also been dropped.
Though the revised DTC is silent on the personal income tax rates and slabs, it said that home buyers would continue to get tax benefits on payment of interest on housing loans up to Rs 1.5 lakh annually.
Revenue Secretary Sunil Mitra said the taxation rates in the first draft, which suggested 10 percent tax on income from Rs 1.60-10 lakhs and 20 percent on income between Rs 10-25 lakhs and 30 percent beyond that, were illustrative.
He said the tax rates would be made known only in the proposed Act, a bill for which will be introduced in Parliament in the coming monsoon session.
The proposals, which did not find favour with stakeholders like salaried class and the industry, were part of the first draft released in August last year.
The government received 1,600 representations on the first draft. The government has asked the stakeholders to give their views on the revised draft by end of this month.
The revised draft also dropped the proposal to impose Minimum Alaternate Tax (MAT) on gross assets, a move which too was fiercely opposed by the industry.
‘FII income to be taxed’
The government has also proposed to tax the income of FIIs from the sale and purchase of securities as capital gains under the proposed Direct Taxes Code (DTC), which will replace the 50-year-old Income Tax Act.
The DTC draft proposes to streamline the holding period of capital assets to one year uniformly. It has also suggested a deduction for a portion of capital gains on listed securities and equity-oriented funds.
It said so far, the majority of the FIIs are reporting their income from such investments as capital gains, but some of them were showing it as business income and claiming total tax exemption in the absence of a permanent establishment in India, leading to litigation.
"It is, therefore, proposed that the income arising on purchase and sale of securities by FIIs shall be deemed to be income chargeable under the head capital gains," said the revised DTC draft.
Tax exemption limit for non-profit entities
The revised DTC draft said that a tax exemption threshold limit beyond which the income of non-profit organisations (NPOs) will be brought under the tax net.
"A basic exemption limit will be provided and the surplus in excess of such limit will be subject to tax," said the revised Direct Taxes Code (DTC), on which the government has invited public comments till June 30.
The revised proposals, however, clarified that public religious charitable institutions would continue to be tax exempt, provided they satisfy conditions prescribed under the code.
Under the code, it also proposed that 15 percent of surplus or 10 percent of gross receipts, whichever is higher, would be allowed to be carried forward to be used within three years from the end of the financial year.
It has also proposed to retain the definition of activities pursued by the NPOs as `charitable purposes`, rather than `permitted welfare activity` to "maintain continuity and minimise litigation".
The DTC also retained the cash system of accounting, since it is easy to follow and administer and proposed that the central government would have the power to notify any NPO of public importance as an exempt entity.
"The finer details under the DTC would have to be examined to understand the categorisation and taxability accordingly," KPMG India Partner Vikas Vasal said.
The government has also proposed to retain the income tax exemption for up to Rs 1.5 lakh paid as interest on housing loans in a year, a step that brings cheers back to home loan borrowers.
The revised discussion paper on Direct Taxes Code (DTC), which would replace the decades old Income Tax Act, has retained the tax exemption for up to Rs 1.5 lakh paid as interest on housing loans. The revised draft is put up for public comments till June 30.