DTC: House panel to suggest changes in tax slabs & rates

Excerpts from Reporter's Diary on CNBC-TV18 Watch the full show »

The standing committee on finance of Parliament headed by former finance minister Yashwant Sinha is expected to meet on Friday to consider and adopt its recommendations on the proposed direct taxes code. This would mark an important development for the advent of the code, reports CNBC-TV18's Siddharth Zarabi.

In fact this also means that the direct taxes code could now become a possibility in the forthcoming Budget if not some of the provisions at least. For corporates the biggest development is that the standing committee has endorsed and agreed with the proposed flat 15% rate of dividend distribution tax. For some it may impact negatively, but overall it is a moderate rate.

It has suggested that all insurance policy dividends should be be exempted from dividend distribution tax and that there be no tas deducted at source (TDS) on stock market brokerage fees, which are paid for such transactions. More importantly it agrees with the direct taxes code proposal to levy a minimum alternative tax on SEZs.

SEZs are exempted from tax under a separate act and therefore the house committee has also called for the SEZ Act to be modified accordingly to enable the inclusion of minimum alternative tax (MAT).

Apart from this it also says that capital receipts cannot be treated as part of gross earnings, employer's payment to welfare funds be made deductible and the definition of what is permissible as a business loss be expanded to cover other events including terror-related events.

It also says that partnership firms on their conversion to Limited Liability Partnership (LLP) should not be asked to pay tax and the onus of dividend distribution tax should not be on the tax payer. The broad line really is that the Standing Committee of Finance has agreed with what the direct taxes code proposes, but disagrees with one or two fundamental aspects of the code especially the chapter and clauses related to toughening and tightening the rules with regard to tax avoidance.

Implication for individuals

It basically suggests a 4-tier tax slab, which is more or less the same as what has been proposed, a peak rate of 30% applicable for all taxable income above Rs 20 lakh. It proposes a cut in the tax rate of 30% for life insurance companies as has been proposed in the direct taxes code.

It says it should be 15%, the current rate is 12.5%, but on the wealth-tax side it is actually in some ways positive news. It talks about exempt, hiking the wealth tax ceiling to Rs 5 crore and imposing a 3% flat rate of wealth tax for all income above Rs 50 crore.

The overall direction as far as the individual side is concerned, the Standing Committee here again endorses the moves that are proposed in the direct taxes code. On one aspect there is a slight divergence. The direct taxes code proposes to reduce the tax eligible time period of residency allowed to NRIs, which is currently at 182 days, it proposes to reduce it to 60 days.