Parliament panel report on DTC tabled in LS

Committee asks for scrapping of STT

 Seeking to simplify tax laws by lowering the rates and bringing more people and firms under the tax net, the Parliamentary Panel on Direct Taxes Code, on Tuesday, tabled its report in Lok Sabha, making it easier for the government to meet the April 2013 deadline for its implementation.

Apart from suggesting a hike in the investment limit for tax savings schemes to Rs 3.20 lakh, and wealth tax limit at Rs 5 crore, the committee also recommended some radical changes such as doing away with the Securities Transaction Tax (STT), which the analyst said the finance minister may not at all touch in the budget for the fear of it stirring the capital market.

While increasing the investment limit is expected to leave more disposable income in the hands of tax payers, the abolition of STT is not expected to have much effect on the capital market as it sheds only Rs 7,500 crore per annum. But, this amount makes a difference for the government fighting to keep its fiscal deficit near the target, analysts said.

The Standing Committee has recommended that Securities Transaction Tax be abolished and the entire capital gains provisions should be recalibrated to state the position, which existed earlier.

“This would require complete overhauling of the position existing in the stock market at present, and it is certainly not one of the top priorities for the finance minister at a time when he is struggling with other pressing issues,” Kotak Bank Tax Analyst Shishir Mahindra said.

The government had introduced STT in 2004 on transactions in different types of securities. The rate varies from 0.025 per cent to 0.25 per cent depending upon the type of security traded and transaction, whether sale or purchase.

The government collects around Rs 7,500 crore per annum from STT and it would be difficult for it to forgo the revenue at a time when efforts are needed to raise revenue and bridge the fiscal deficit.

However, the possibility of some provisions of the DTC finding their way into the Budget cannot be ruled out such as the General Anti-Avoidance Rule (GAAR), which is a set of broad and general principle-based rules enacted in the tax code aimed at counteracting avoidance of tax.

Analysts said, the tabling of the report in the Lok Sabha has paved the way for its implementation earliest by next year. Unlike the Goods and Services Tax, the DTC can come only from the commencement of the new financial year.