The government may increase sops to low-income tax payers in the proposed Direct Tax Code (DTC). The details of the new tax system, which is scheduled to be implemented from April 1, 2011, have been put on the finance ministry's website to get reactions from general public, professionals and industries.
The government will also look into objections raised by the industry, regarding new proposed minimum alternate tax (MAT) to be levied on the basis of assets of a company instead of profit.
In an interaction with the industry captains and tax professionals, FM Pranab Mukherjee on Friday said the government would implement the new tax system only after a comprehensive review of the proposals in the light of suggestions put forwarded by all stakeholders.
He said the government has identified seven critical areas in the DTC for further examinations after interactions with stakeholders.
The areas are concept of MAT based on gross assets, shift from EEE (exempt-exempt-exempt) to EET (exempt-exempt-tax) system, Double Taxation Avoidance Agreement (DTAA), General Anti-Avoidance Rule (GAAR) and issues relating to effective management control and taxation of foreign companies in India.
In the tax code, the threshold level of income that will start attracting tax has been kept same at Rs 1.6 lakh. The tax rate on the income between Rs 1.6 lakh and Rs 3 lakh also left at the same level of Rs 10%. But, the tax rate between Rs 3 lakh and Rs 25 lakh has been lowered.
While the rate between Rs 3 lakh and 10 lakh will come down to 10% as against 20% for income between Rs 3 lakh and Rs 5 lakh and 30% between Rs 5 lakh and Rs 10 lakh. For income between Rs 10 lakh and Rs 25 lakh, the tax rate will be 20% as against the current rate of 30%. The tax incidence on the income beyond Rs 25 lakh will be same at 30%. But, the new system will benefit the person with higher income as shown in the chart.
Revenue secretary PV Bhide said the department will address the issue in the final draft. He also said the department will be open to suggestions on proposed EET system. In EET, an investor gets the tax benefit while saving money but pays tax on withdrawal. As against this, at present, there are options like public provident fund and equity linked savings schemes, which are EEE withdrawal of matured amount is also tax free.
All the three chambers CII, Ficci and Assocham said the proposed tax system will be counter productive as it will discourage investment in the economy.