The Hindu Business Line : New Code promises lower direct tax rates

With this, the Finance Minister has fulfilled the promise he made in his Budget Speech on July 6 that the draft direct taxes code would be put up for public debate within 45 days. Both Mr Mukherjee and the Home Minister, Mr P. Chidambaram, who was invited for the release ceremony, made it clear that the proposed new Tax Code would replace the existing Income-Tax law and was not intended to bring amendments to the Income-Tax Act, 1961.

Mr Chidambaram also indicated that the the new Code would be applicable only from 2011. “By the time the new Code is debated and becomes law, I think it will be year 2011, marking the golden jubilee of the earlier Code”, he said.

A chunk of the drafting of the new Code has been done by Mr Chidambaram himself, Mr Mukherjee said, while commending his predecessor’s efforts.

Single Code

Mr Pranab Mukherjee said that with the implementation of the Code the Government expects better compliance and realisation of taxes.

“The overall objective has been to keep the Code as simple as possible. I expect the Code to eliminate scope for litigation as far as possible. All direct taxes have been brought under a single Code,” he said.

The Finance Minister also said that he expects informed debate and discussions between now and the winter session of Parliament; the Government intends to introduce a Bill in the winter session.

One of the features includes moderation of tax rates for domestic companies. The basic tax rate is proposed to be brought down to 25 per cent from the current 30 per cent. The same rate of 25 per cent is proposed to be applied for foreign companies also. However, they will be required to pay branch profits tax of 15 per cent.

For individuals, the Code proposes to tax total income between Rs 1,60,000 and Rs 10 lakh at 10 per cent of the amount by which the total income exceeds Rs 1,60,000.

Where the total income exceeds Rs 10 lakh but not Rs 25 lakh, the tax liability will be Rs 84,000 plus 20 per cent of the amount by which the total income exceeds Rs 10 lakh.

Where the total income exceeds Rs 25 lakh, the tax liability will come to Rs 3.84 lakh plus 30 per cent of the amount by which the total income exceeds Rs 25 lakh.

Savings limit

Moreover, the savings limits are also proposed to be increased to Rs 3 lakh. From April 1, 2011, contributions to all savings instruments would be subject to tax under the ‘exempt-exempt-tax’ method — that is, withdrawals will be subject to tax.

Mr Mukherjee admitted that the Government had taken time to come up with a simplified tax code though Dr Manmohan Singh, as Finance Minister in 1991, had underscored the need for a tax system that was easily understandable, with moderate rates and without exemptions.