No clarity on capital gains tax in DTC Bill: Expert

Excerpts from Bazaar on CNBC-TV18 Watch the full show » RELATED NEWS Proposed MAT rate of 20% a dampener: Tax experts Union Cabinet approves Direct Taxes Code Bill

Experts are not so gung-ho about the new Direct Tax Code (DTC) Bill that the Union Cabinet has approved yesterday and awaiting a parliament nod. The proposed tax reform 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.

In an interview to CNBC-TV18 Supreme Court Advocate HP Ranina said that the DTC has no clarity on capital gains tax. Expressing displeasure he said that benefit from income tax slabs cut is not too high. Raina also commented that minimum alternative tax (MAT) is more of a revenue bridging move.

Though not so happy on the DTC Bill, Nishith Desai Associates, Founder,  Nishith Desai is awaiting for the fine print to be out on 30 August for a better understanding. However Desai is of the view that it is good to see MAT on book profits.

Here is the verbatim transcript of their interview with CNBC-TV18's Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying video.

Q: It appears now from what you have seen that securities transaction tax (STT) will stay and there is lot of long-term capital gains tax will also be nil as well, there should not be any change to it.

Ranina: I don't think that's clear from what the Finance Minister said yesterday. But if you look at the second draft of the DTC code, what they suggested was the capital gains, long-term will be taxable, but will be taxable at certain rates. So, the longer you hold the shares or mutual funds units, the less will be the capital gains. This is the structure, which they have given, in the new discussion paper. Now, we have to wait and watch on Monday, when the bill is introduced, whether the same provisions are incorporated in the final Bill, which is tabled in Parliament.

Q: On the personal income tax front, are you heartened by the lowering of slabs? Does that read as a positive?

Ranina: Well, the slabs have now been brought up, maximum 30% will now be applicable where it exceeds Rs 10 lakh. But don't forget that when the first draft was introduced after Mr Chidambaram had just left the Ministry, the 30% tax was applicable on income over Rs 25 lakh, that is now been brought down to Rs 10 lakh. So, in that sense, looking at it from that point of view, I think tax payers will be worse off. But of course compared to what they are today, where the highest rate is applicable on income over Rs 8 lakh and Rs 10 lakh, seems to be reasonably good.

Q: So you would say it doesn't necessarily mean increased disposable income because of this tweaking of slabs?

Ranina: Not much. It will vary from anywhere between Rs 5,000 to Rs 28,000 up to income of Rs 25 lakh. So, not much of a extra money left in the hands of the people.

Q: On the corporate tax front, do you take it as a relief that the rate might be capped at 30% now or the fact that a lot of the exemptions, concessions are probably going to go away, the effective tax rate might actually not be diminished very significantly?

Desai: That's true. I think that has been a trend for the last eight-ten years to reduce exemptions and keep the tax rates more stable. But I think much remains to be seen as to what's going to come up in the actual text. I don't get euphoric with little reduction on tax here and there, but more important thing is to always look at what is the language of the law. So, I think we are all waiting for the fine print to come out on Monday morning and then we will really get a picture as to what is given is good, bad or worst.