Govt moots new tax law; 10% tax upto Rs 10 lakh
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Last Updated: Thursday, August 13, 2009, 15:31
  
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.

Highlights

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.
  • Proposes moderate Income Tax rates

  • Maintains tax exemption at Rs 1.60 lakh income a year

  • 10 per cent tax on income of Rs 1.6-10 lakh

  • 20 per cent on income over Rs 10 lakh up to Rs 25 lakh

  • 30 per cent on income beyond Rs 25 lakh

  • Adding of perks in income for taxation

  • Corporate Tax rate to be 25 pc against 30 pc

  • Wealth Tax to be levied on wealth over Rs 50 cr

  • Abolition of Securities Transaction Tax

  • Re-introduction of long-term capital gains tax

  • Raising of tax deduction on savings to Rs 3 lakh

  • Introduction of anti-avoidance rule



    Bureau Report


    First Published: Thursday, August 13, 2009, 15:31


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