The Finance Ministry on Tuesday released a revised Direct Taxes Code (DTC) for comments. The new tax code is meant to create an efficient direct tax system by replacing the archaic Income Tax Act. The Direct Taxes Code Bill, 2010, was introduced in the Lok Sabha in 2010 and was later referred to the Standing Committee on Finance.
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The draft tax code proposes a new tax rate of 35 per cent for individuals having income exceeding Rs 10 crore.
The Standing Committee on Finance headed by senior BJP leader Yashwant Sinha had proposed no tax on income of up to Rs 3 lakh per annum; 10 per cent for Rs 3 lakh to Rs 10 lakh; 20 per cent, for Rs 10 lakh to Rs 20 lakh and 30 per cent on annual income beyond Rs 20 lakh. But these recommendations did not make into the draft Direct Tax Code. "The recommendation is not acceptable as it will result in huge revenue loss. The total revenue loss on account of recommended changes in income tax slabs and removal of cess works out to Rs 60,000 crore approximately," says the proposed Direct Taxes Code - 2013. As per the current structure, there is no tax on income of up to Rs 2 lakh per annum; 10 per cent on Rs 2 lakh to Rs 5 lakh; 20 per cent on Rs 5 lakh to Rs 10 lakh and 30 per cent on income beyond Rs 10 lakh.
The draft Direct Taxes Code - 2013 proposes to reduce the age for tax exemption for senior citizens to 60 years from 65 years.
The new draft tax code widens the base for levy of wealth tax. The revised code captures all assets for wealth tax, whether physical or financial, thereby removing the distinction between physical and financial assets. Wealth tax is proposed to be levied on individuals, Hindu Undivided Family (HUF) and private discretionary trusts at the rate of 0.25 per cent. The threshold for levy of wealth tax in the case of individual and HUF shall be Rs 50 crore. According to the current tax norms, every individual and Hindu Undivided Family (HUF) who has wealth exceeding Rs 30 lakh is required to pay wealth tax and the wealth tax rate is 1 per cent.
With a view to provide parity in treatment of insurance products and mutual fund products,the new Direct Tax Code proposes to levy income distribution tax on equity linked insurance products on the lines of equity oriented mutual funds.
The new tax code proposes additional tax @10 per cent on recipient of dividend (liable to dividend distribution tax) exceeding Rs 1 crore. Under the Income-tax Act, the dividend distribution tax is to be levied at the rate of 15 per cent.
The revised DTC says the provisions of 'Income from house property' shall not apply to the house property, or any part of the house property, which is used for business or commercial purposes.
The new tax code says the amount of rent received in arrears or the amount of rent which is not realised from a tenant and is realised subsequently shall be deemed to be the income from house property of the financial year in which such rent is received or realised.
For the purposes of deduction in respect of interest on loan taken for self-occupied house property, the loan given by the employer should also qualify for this concession.
With a view to provide smooth transition from IT Act to Direct Taxes Code, the new tax code says provisions will be made for treatment of losses remaining to be carried forward and set off as per the provisions of the existing Income-tax Act on the date on which DTC comes into effect.