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 What to expect from new direct tax law

New draft for tax code underway
May, 27th 2010

The new draft for the direct tax code (DTC) could be released by the June 7 or 8. The long awaited document could include a significant cut in tax rates but also seek to widen the tax base.

The new tax code is Indias biggest tax reform and the finance ministry has struggle to convince stakeholders to sign up for nearly a year now. Finance Minister Pranab Mukherjee is betting big on the direct tax code.

In an exclusive chat with NDTV Revenue Secretary Sunil Mitra indicated that the new direct tax code could incorporate a significant cut in tax rates, as the government wants to widen the tax base and encourage compliance.

However, tax rates will not form part of the new discussion paper on the revised direct tax code, but instead will be brought in later when the direct tax code legislation is readied.

As of now the finance ministry is hoping to put the new direct tax code out by June 7 or 8.

This will also mean cleaning up of exemptions especially for the corporate tax payers, for instance, the SEZs, which so far had been completely out of the tax net.

You cannot change the law retrospectively, but yes a prospective date could be set and from that date the exemptions will no longer exist. said Krishan Malhotra, executive director of KPMG.

Despite this, the revenue secretary has raised a concern on the possible loss of revenue from the lowering of tax rates under the DTC.

However, to plug this gap the finance ministry is aiming for a simultaneous roll out of the goods and service tax (GST) with the DTC.

Meanwhile, taxpayers will have to wait a while to know the new tax rates under the Direct Tax Code. Instead issues like minimum alternative tax (MAT) or taxing capital gains of non residents will be the immediate focus of the government.

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