Cabinet okays new direct tax regime; Parliament nod expected

The union cabinet has approved the direct taxes code (DTC) bill, paving the way for its introduction on Monday in the ongoing monsoon session of Parliament, law minister Veerappa Moily told newspersons today.

Aimed at simplifying the country's archaic direct tax laws, the DTC will replace the archaic Income Tax Act and simplify the whole direct tax regime in the country. The code seeks to reduce tax rates, but expand the tax base by minimising exemptions. The DTC is a key reform aimed at widening the tax net and increasing revenues for the central government.

The proposed DTC will cut tax rates to bring in more people and companies under the net, phase out profit-linked exemptions for firms and replace them with investment-linked incentives.

The new DTC bill proposes to raise exemption limit for personal income tax from Rs1.6 lakh to Rs2 lakh. It also proposes income tax for the Rs2-5 lakh slab at 10 per cent, 20 per cent on income of Rs5-10 lakh, and 30 per cent on income beyond that. The bill exempts senior citizens earning up to Rs2.5 lakh from income tax. Further, the draft code has proposed corporate tax at 30 per cent with no cess and surcharge.

The finance ministry had earlier come out with a draft on the DTC bill, some of whose provisions drew strong criticism from industry as well as the public. To address those issues, the ministry brought out the revised draft, dropping earlier proposals of taxing provident funds on withdrawal and levying minimum alternate tax (MAT) on corporate houses based on their assets.

"As of now, it is proposed to provide the EEE (exempt-exempt-exempt) method of taxation for Government Provident Fund (GPF), Public Provident Fund (PPF) and Recognised Provident Funds (RPF)," the revised DTC released by the finance ministry said. The revised draft also puts pensions administered by the interim regulator PFRDA, including pension of government employees who were recruited since January 2004, under EEE treatment.