Recently, Parliamentary Standing Committee on Finance, led by the former finance minister Yashwant Sinha, proposed several tax recommendations to the finance ministry. Of the 190 recommendations made by the committee, the key ones were that the income tax exemption limit should be raised to Rs 3 lakh and the income tax slabs should be modified in the following manner:
|Income Bracket||Tax Applicable|
|Income up to 3 Lakh||Nil|
|Rs 3 Lakh to Rs 10 Lakh||10%|
|Rs 10 Lakh to Rs 20 Lakh||20%|
|Above Rs 20 Lakh||30%|
The finance ministry rejected the recommendations justifying that the proposed removal of cess and change in tax slabs might lead to substantial revenue losses, amounting approximately to Rs 60,000 crore.
The revised draft of Direct Taxes Code (DTC) Bill was presented by the current Finance Minister P Chidambaram. Here are the key reforms:-
- The age for income tax exemption has been reduced from 65 years to 60 years for senior citizens
- The bill revised the tax rate for the super rich individual and Hindu Undivided Family (HUF) with an income crossing Rs 10 crore mark. The new applicable tax rate will be 35%
- The revised draft has retained the Securities Transaction Tax (STT) as it deems it necessary for day trading regulation
- An additional 10% tax will be levied on dividend income crossing Rs 1 crore mark
- A wealth tax of 0.25% will be levied on assets of individuals, HUFs and trusts crossing Rs 50 crore mark
- The proposed deduction for corporate social responsibility (CSR) expenditure has been rejected on the grounds of potential revenue loss
The fresh draft will have huge implications in the market, especially the insurance sector. Life insurance companies can take a breath of relief as the ministry decided to retain the tax rate at 15% (30% was the proposed rate). The ministry further announced that the policyholders’ investments will not be subjected to dividend distribution tax. However, the ministry has decided to levy Income Distribution Tax on equity-linked insurance.
The finance ministry has assured the committee and the taxpayers that the proposed DTC bill will strengthen tax laws and check tax evasion, leading to a healthier economy.