Govt may scale down tax relief proposed in DTC draft

Under the first draft of DTC, income of Rs 10 lakh to Rs 25 lakh was to attract tax at the rate of 20 per cent, but the final draft expected by June 15 may propose slapping 30 per cent tax on any income above Rs 10 lakh per annum, according to sources. This is to make up for the possible concessions the ministry may extend in other areas like exempting long term savings from tax at the time of withdrawal and the way Minimum Alternate Tax is calculated, sources said. As such, the relief on highest tax slab would not be much, since under the present regime too, 30 per cent tax is imposed on income of more than Rs eight lakh a year.

Sources said the ministry is reworking the August 2009 draft following feedback from stakeholders. Under this, the 10 per cent tax proposed on income up to Rs 10 lakh may now stand scaled down to Rs five lakh a year. And income of Rs 5 lakh  to 10 lakh a year would attract 20 per cent tax, although the first draft proposed slapping this rate on Rs 10-25 lakh income.

However, the threshold level of income that is exempt from tax may be raised to Rs two lakh from Rs 1.6 lakh at present. The first draft had propopsed retaining the threshold limit at Rs 1.6 lakh. Sources said the government has to generate tax revenue for meeting its expenses and it might yield to the ‘genuine’ demand of MAT being imposed on book profits rather than on gross assets as suggested in the first draft.

“Gross assets also include the debt portion of a company and it is highly illogical to tax debt,” said a source.

Further, the ministry might also agree to retain the current provision of following exempt-exempt-exempt (EEE) model for long term savings like provident fund and pension, instead of changing to exempt-exempt-tax (EET). EET model implies that tax would be imposed on long term savings at the time of withdrawal.

The final draft would be open for feedbacks from various stakeholders for 15 days, after which the ministry would put it up for the Cabinet’s approval before taking it to Parliament.