EEE to stay, no tax on withdrawal of savings ....TIMESOFINDIA site
The Cabinet on Thursday approved the draft of the Direct Tax Code (DTC) Bill, but the changes in tax slabs proposed in the latest version are a pale shadow of the sweeping changes promised in the original proposal unveiled in August last year by finance minister Pranab Mukherjee.
The version approved by the Cabinet exempts incomes up to Rs 2 lakh per annum (against the current Rs 1.6 lakh) from tax, proposes to tax incomes between Rs 2 lakh and Rs 5 lakh at 10%, between Rs 5 lakh and Rs 10 lakh at 20% and beyond Rs 10 lakh at 30%.
For women and senior citizens, the exemption limit would be Rs 2.5 lakh per annum. At present, women have to pay tax on incomes of Rs 1.9 lakh per annum or more and senior citizens on incomes of Rs 2.4 lakh or more.
The maximum that anyone can gain from this proposal in terms of savings on the tax burden compared to the present levels is Rs 26,000 per annum. Even that is only possible if you are a woman and have an annual income of Rs 10 lakh or more. That's a far cry from the Rs 2.2 lakh that the same person would have saved if the original DTC proposal had been accepted by the Cabinet.
For corporates, too, the DTC appears to have flattered only to deceive. The code passed by the Cabinet has maintained the rate of tax on corporate incomes at the current 30%, against the 25% proposed originally, and the minimum alternate tax (MAT) for corporates at 20% of book profits.
The original draft had promised a whole new paradigm in direct taxation, drastically lowering the tax burden while also doing away with most exemptions. A revised draft released in June this year brought back some of the exemptions like the one available for interest on housing loans that the first draft had proposed to get rid of.
The speculation that this might force the finance ministry to make the revision of tax slabs also less ambitious to avoid giving away too much revenue has now proved well-founded. Under the original proposal, the 10% slab would have extended up to Rs 10 lakh and the 20% slab up to Rs 25 lakh, meaning that the 30% rate would have applied only to incomes of over Rs 25 lakh per annum.
What has finally emerged unless the rates or slabs are changed once again in the process of being discussed in the Parliamentary standing committee or in Parliament hardly justifies the hype that greeted the DTC when it was announced last year. It is the sort of tinkering at the margins that routinely happens in the annual Budget, instead of being the biggest tax revolution since Independence.
On the plus side for individual taxpayers, withdrawal from provident funds will not be taxed as the original DTC had proposed to do. Also deductions from taxable income will be available for interest on housing loans up to Rs 1.5 lakh per annum and on payments into PF and similar superannuation schemes up to Rs 1 lakh. Also available will be a deduction of up to Rs 50,000 for life insurance and health insurance premiums or tuition fees.
