The government proposes to reform its archaic tax laws, cut corporate tax rates to 25 percent, phase out exemptions, and simplify rules on corporate mergers. Here are some of the key proposals of the draft Direct Tax Code announced late on Wednesday, which is likely to be implemented from the year 2011 and would replace the Income Tax Act of 1961.
* The draft code proposes to cut the corporate tax rate to 25 percent from the present 30 percent.
* The tax rate would be 15 percent for non-profit making organisations, and 30 percent for local authorities and unincorporated bodies.
* All profit-linked incentives for businesses to be phased out and substituted by investment-linked incentives.
* Business losses can be carried forward indefinitely.
* Laws on mergers and acquisitions are to be rationalised to allow "tax-neutral" business reorganisation.
* Minimum Alternate Tax would be levied at 0.25 percent for banks and 2 percent for firms on their gross assets, instead of the present levy on book profits of companies making net loss.
* Securities transaction tax to be abolished.
* The draft proposes to retain a 15 percent tax on dividends.
* Taxation of capital gains to be rationalised.
* Distinction between long-term and short-term capital gains to be eliminated.
* The draft proposes 10 percent tax on income between 160,000 rupees ($3,325) and 1 million rupees for an individual, from the present range of 160,000-300,000 rupees.
* A 20 percent tax is proposed for income between 1 and 2.5 million rupees from the present limit of 300,000-500,000.
* The tax rate would be 30 percent for income above 2.5 million rupees, compared with the present upper threshhold of 500,000 rupees.
* All perquisites to be included in salary income.
* Income from lotteries, gambling and racing would attract 30 percent tax.
* Wealth tax rate would be 0.25 percent of the amount by which the net wealth exceeds 500 million rupees.
* All savings would be taxed at the time of withdrawal.
* Retirement benefits to be taxed at the time of withdrawal.
* The draft also proposes to raise the deduction limit for savings to 300,000 from the present 100,000.