New Delhi: People earning more than Rs10 lakh a year may save up to Rs41,040 in income tax, if slabs proposed by the Direct Taxes Code (DTC) Bill come into effect, experts said.
Similarly, tax burden would reduce by Rs21,540 for those earning annual income between Rs5 lakh and Rs10 lakh, while those making Rs2 lakh to Rs5 lakh could be richer by Rs7,660, Deloitte Haskins & Sells Partner Neeru Ahuja said.
According to the Bill presented in the Lok Sabhaon Monday, income from Rs2-5 lakh is likely to attract tax rate of 10%; 20% in the Rs5-10 lakh bracket and 30% above Rs10 lakh.
At present, income between Rs1.60 lakh and Rs5 lakh attracts 10% tax, while the rate is 20% for the Rs5-8 lakh bracket and 30% for above Rs8 lakh.
The Bill proposes to raise income tax exemption limit to Rs2 lakh from the current Rs1.60 lakh.
“For the individuals, DTC tax slabs are certainly beneficial. Their tax liabilities will go down,” DSK Legal Partner Balbir Singh Mastan said.
For senior citizens, exemption limit is proposed to be raised to Rs2.5 lakh from Rs2.40 lakh.
Individuals over 65 years, or senior citizens, could see tax burden lessen by Rs4,420, if they earn Rs5 lakh a year, while those earning Rs10 lakh will save Rs18,300 tax.
Senior citizens earning Rs15 lakh annually could save Rs37,800 in case the Bill is enacted.
Corporate taxpayers may get relief
The government has proposed to retain corporate tax at 30%, but without the surcharge and cess that increase the current levy to over 33%.
The current tax rate for domestic companies, including surcharge and cesses, comes to about 33.22%, while foreign companies pay over 40%.
The Bill sought to levy the same corporate tax rate on domestic and foreign companies.
Tax experts said the proposal in the Direct Taxes Code (DTC) Bill tabled in the Lok Sabha on Monday will provide much- needed relief to the industry and bring the levy on par with global standards.
However, they wanted the corporate tax rate to be even lower at 25%, as was proposed in the first draft of the Direct Tax Code Bill.
“The DTC Bill proposes to bring the taxability of Indian corporates at par with global standards. India is now going down towards a low-tax country,” Deloitte Tax partner Sunil Shah said.
He said the government will gradually bring down the corporate tax rate to 25%, as it needs some time to bridge the transition from a high-tax country to a low-tax one.
However, Ficci taxation advisor SB Gupta said, “The tax burden of corporates would come down. It would have been better if it was 25%.”
Referring to the 30% corporate tax, L&T CMD AM Naik said it was a small payback for a lot of things which did not happen.
“We needed a lot of support for more investment in terms of higher depreciation (rate) and development concessions and so on,” he said.
In addition, the DTC also proposed to increase the minimum alternate tax (MAT) rate to 20% of book profit from the current 18%. However, under the current Income Tax Act, adding up the surcharge and cess would take the current MAT to 19.93%.
“The government has removed the concept of gross asset tax and has rounded off the MAT rate to 20% to factor in surcharge and cess,” Ernst & Young tax partner Vishal Malhotra said.
KPMG deputy CEO and chairman tax Dinesh Kanabar said, “The Bill wants to do away with cess and surcharge, which is overall good for corporates, be it in calculation of MAT or corporate tax.”
MAT is a levy imposed on profit-earning companies that do not fall under the tax net due to various exemptions.
However, some experts said the increase in MAT will act as a dampener for corporates.
KPMG executive director Vikas Vasal said, “While the 30% corporate tax is good keeping in mind that the government has to maintain its revenue collection, the MAT rate at 20% is a kind of dampener, as the difference between the corporate tax and MAT is now getting narrower.”
In the original draft of the DTC, the government had proposed to levy MAT on gross assets, which had evoked much criticism from companies. As such, the second draft of DTC switched back to levying MAT on book-profits.
DTC seeks exemption hike on long-term savings to Rs1.5 lakh
The government proposed only a marginal raise in income tax exemption for investment in approved funds and insurance schemes to Rs1.5 lakh in a year, from Rs1.2 lakh currently.
The DTC seeks to provide income tax exemption on investment of up to Rs1 lakh in approved funds.
Besides, it proposes to provide exemption of up to Rs50,000 on investments made in insurance, including health cover, and tuition fee.
Currently, investment up to Rs1 lakh in approved funds and insurance schemes is exempt from income tax. For this fiscal, investment up to Rs20,000 in infrastructure bonds have also been given this benefit.
The exemptions proposed in the Bill are much lower than Rs3 lakh suggested in the first draft.
This is so because the bill proposes to retain income tax exemption on interest up to Rs1.5 lakh a year paid on housing loan, tax experts said.
The first draft was silent on exemption for interest paid on housing loans. However, after adverse feedback from various quarter, the second draft proposed to retain this exemption, which is also incorporated in the bill.
Experts said, meanwhile, that if exemption on housing loan of Rs1.5 lakh is coupled with the proposed limit on approved funds, insurance schemes and tuition fee, the total exemption comes to Rs3 lakh in a year, which is equal to what was suggested in the first draft.