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DTC: Not much relief for tax payers

June 18, 2010 10:15 IST

Taxpayers are not likely to get as much relief as was proposed in the discussion paper on the Direct Taxes Code last year, with the Finance Ministry saying that the tax slabs may be narrowed down in the bill, slated to be tabled in the monsoon session of Parliament.

This is likely to happen since the revised draft on the Direct Taxes Code (DTC) dropped the contentious issues of imposing tax on provident and pension funds at the time of withdrawal and levying minimum alternate tax (MAT) on the basis of gross assets.

"The proposals in the revised discussion paper would lead to reduction in the tax base proposed in DTC (last year)," sources in the Finance Ministry told PTI.

The first discussion paper floated last year had proposed a substantial widening of the tax base. It had suggested imposing 10 per cent tax on income of Rs 1.6 lakh-Rs 10 lakh, 20 per cent on income of Rs 10 lakh-25 lakh and 30 per cent beyond Rs 25 lakh in a year.

The tax slabs proposed were substantially wider even compared to the increase in the Budget this fiscal.

The Budget had imposed 10 per cent tax on income of Rs 1.6 lakh-5 lakh, 20 per cent on Rs 5 lakh-8 lakh and 30 per cent over Rs 8 lakh in a year.

Before this, the slabs were from Rs 1.6 lakh-3 lakh, Rs 3 lakh-5 lakh and over Rs 5 lakh in a year. Women and senior citizens enjoy greater relief.

The sources said it had been stated in the first discussion paper that the government would consider calibrating the rates of tax in the light of the responses and comments received on the scope of the tax base proposed.

The proposals in the first discussion paper to tax long-term savings like pension and provident funds at the time of withdrawal and imposing MAT on gross assets of companies drew strong criticism.

Responding to these strong comments, the revised discussion paper did away with both the proposals.

Now MAT, the tax on profit-earning firms that do not come under the tax net due to exemptions, will be levied on their profits, instead of gross assets.

The revised paper also retained the present provisions of giving income tax exemption on interest paid on housing loans up to Rs 1.5 lakh in a year.

As such, tax slabs proposed in the first discussion paper will be calibrated accordingly, the sources said. They added that tax slabs given in the first discussion paper were anyway illustrative in nature.

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