The Government will table the much-awaited Direct Taxes Code (DTC) bill in the Lok Sabha tomorrow, that is expected to provide relief to income tax payers, both personal and corporate, though not as much as was proposed earlier in the draft.
The government is quite confident of replacing archaic Income Tax Act with DTC from April one, 2011.
Finance Minister Pranab Mukherjee has said he would announce the slabs for personal income tax while tabling the bill and has refused to share the details before that.
He has only said so far that the exemption limit will be raised from the current Rs 1.6 lakh in a year to Rs two lakh.
However, sources said that as per the bill, approved by the Cabinet on Thursday, income between Rs 2-5 lakh is likely to attract 10 per cent tax; for Rs 5-10 lakh it will be 20 per cent and above Rs 10 lakh, 30 per cent.
Currently income between Rs 1.6-5 lakh attracts 10 per cent tax; between 5-8 lakh, 20 per cent and beyond 8 lakh, 30 per cent.
The proposed tax slabs are much lower than originally proposed in the draft DTC bill -- 10 per cent for Rs 1.6 lakh to Rs 10 lakh, 20 per cent between Rs 10-25 lakh and 30 per cent for income above Rs 30 lakh.
Compared to the current tax slabs, the proposed rates will make tax payers earning Rs 15 lakh a year richer by Rs 41,040.
Similarly, tax burden would reduce by Rs 21,540 for those earning between Rs 5 lakh and Rs 10 lakh annually, while those earning between Rs 2-5 lakh could be richer by Rs 7,660, Deloitte Haskins & Sells Partner Neeru Ahuja said.
The tax slabs are proposed to be reduced from the draft stage, because the government is expected to retain income tax exemption on interest on housing loans up to Rs 1.5 lakh a year, under pressure from certain quarters.
Also, earlier proposals of taxing long term savings like provident funds at the time of withdrawal have been dropped.
DTC aims at reducing tax rates, and cutting exemptions. With the government getting adverse feedback on the proposals to withdraw some exemptions, it will have to calibrate tax rates to save the government kitty.
The DTC bill also proposes to retain corporate tax at 30 per cent, but without surcharge and cess. With them, the current tax liability on corporates comes to over 33 per cent.
Tax experts said this proposal will provide much needed relief to the industry and bring the levy on par with global standards, though the industry wanted it to be reduced to 25 per cent. The government also conceded to the industry demand not to levy minimum alternate tax (MAT) on assets but book profits of the companies. So, it had to dilute earlier proposal of cutting corporate tax to 25 per cent, sources said.
However, the government raised MAT to 20 per cent from 18 per cent, but it should not make much of a difference since with surcharge and cesses, MAT currently comes to 19.33 per cent.
MAT is tax imposed on profit earning companies that do not fall under the tax net because of various exemptions.
Sources said it is for Parliament to decide whether DTC will be the money bill or ordinary legislation.
In case, it is money bill, the government is required to pass it in the Lok Sabha only.
As such, the government is confident that the DTC could be enacted from next fiscal.
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