The super-rich may have to pay more in taxes while dividends in excess of Rs 1 crore will be taxed in the hands of those receiving them, according to the revised Direct Taxes Code, 2013 issued by the finance ministry on Tuesday for public discussion.
Chidambaram had sought Cabinet's nod in August 2013 to introduce the revised version in Parliament, but the proposal faced resistance from within the government. The Bill was withdrawn from the Cabinet's agenda following intervention by the Prime Minister's Office.
"We have also got ready a Direct Taxes Code that will serve us for at least the next 20 years. I intend to place it on the website for a public discussion without partisanship or acrimony," finance minister P Chidambaram said in his speech presenting the interim budget in February. "I appeal to all political parties to resolve to pass the GST laws and the DTC in 2014-15," he said.
DTC's prospects will depend on the priorities of the next government. "One would have to wait for the formation of the next government post-general election and whether DTC would be on their business agenda," said Sanjay Sanghvi, partner, Khaitan & Co.
But at least this will give it a blueprint for action. "The new government may not start afresh completely as they will have something to begin with," said Ketan Dalal, joint tax leader, PwC India. The DTC Bill, originally conceived by Chidambaram, seeks to replace the Income-tax Act that's more than 50 years' old.
The personal income-tax exemption threshold has been left unchanged with the finance ministry rejecting the parliamentary standing committee's recommendation to raise it toRs 3 lakh as this would imply an annual revenue loss of Rs 60,000 crore to the exchequer. The panel headed by senior BJP leader Yashwant Sinha had proposed no tax on income of up to Rs 3 lakh per annum, 10% for Rs 3-10 lakh, 20% for Rs 10-20 lakh and 30% on annual income beyond Rs 20 lakh. The current structure exempts annual income of up to Rs 2 lakh per annum.
It prescribes 10% on Rs 2-5 lakh, 20% on Rs 5-10 lakh and 30% on income beyond Rs 10 lakh. "The recommendations of the committee 'were not in harmony' with the broad taxation policy and have not been incorporated in the revised code... The recommendation is not acceptable as it will result in huge revenue loss," the ministry said.
Of the 190 recommendations of the committee, 153 are proposed to be accepted wholly or with partial modifications. The latest version also proposes to reduce the age for tax exemption for senior citizens to 60 years from 65 years.
It proposes a 35% tax rate for an individual and a Hindu Undivided Family (HUF) having income exceeding Rs 10 crore. In the 2013-14 budgetDTC draft retains exemption limit; proposes 35% super-rich tax, Chidambaram had imposed a surcharge of 10% on those with taxable income in excess of Rs 1 crore, pegging the number of such taxpayers at 42,800. Additional tax at the rate of 10% is proposed on recipients of dividends exceedingRs 1 crore.
The revised DTC has proposed that income from a residential property that is not used for business or commercial purposes will be taxed under the head 'income from house property'. The revised code captures all assets for wealth tax, whether physical or financial, removing the distinction between the two. Wealth tax is proposed to be levied on individuals, HUFs and private discretionary trusts at the rate of 0.25%. The threshold for the levy in the case of individuals and HUFs is proposed at Rs 50 crore.
The Bill proposes to tax indirect transfers if 20% of the global assets are in India, a fallout of the Vodafone tax case. The original DTC Bill, 2010 provided for a 50% threshold of global assets to be located in India for taxation.
"This threshold is too high. There could be a situation that a company has 33.33% assets in three countries, but it will not get taxed anywhere. Accordingly, the revised code provides for a threshold of 20% of global assets to be located in India for taxation," it said.