The new Direct Tax Code (DTC) panel may not recommend bringing back estate or inheritance tax as feared by many in India Inc.
"It could be very complex to bring back estate duty or tax, also known as inheritance tax or wealth tax," a source said.
It is difficult to assess stock of wealth than the regular flow of income as the assets can be disguised and even stashed away abroad, according to the source.
The estate tax on inherited property was axed in 1985. But it is again being talked about as a measure to bump up Centre's revenues so that the government can provide cash handouts to the poor. Poll promises of both Bharatiya Janta Party and Indian National Congress include spending crores of rupees on income support for farmers and poor.
The committee will submit its report to the finance ministry by May end, coinciding with the new government assuming office. The new government might suggest changes in the report. The panel's suggestions are likely to be incorporated in the drafting of the full Budget by the next government, which is to be elected in the last week of May. The full Budget is likely to be presented in July.
With the income inequality increasing the possibility of an inheritance tax staging a comeback, many prominent business families have already begun to hedge their wealth.
Mahindra & Mahindra chairman Anand Mahindra and Godrej Group chairman Adi Godrej are among several industrialists who have transferred their shareholding to family trusts.
Many countries are looking at taxing rich to reduce income inequalities.
"The panel is discussing it. But that is not our primary concern. Our mandate is to come up with a law that in consonance with the economic needs of the country," said a source privy to the developments.
While the task force is unlikely to favour the inheritance tax, it may recommend a reduction in corporate tax from 30% to 25% for all the companies. All large firms pay the highest 30% tax to the government while medium and smaller firms with an annual turnover of up to Rs 250 crore pay 25% tax to the government. The National Democratic Alliance (NDA) government in 2015 had promised to lower the corporate tax for all the companies until 2019 but couldn't keep the promise for big firms. Recently, in an industry interaction, finance minister Arun Jaitley promised to reduce the corporate tax to 25% for all the companies and if his party is elected back to power.
"The panel is looking at corporate tax as the government had promised to the industry. The tax policies are already in place and the incentives take time to die out," said sources, adding that the long-term incentives will be over by 2024.
"The phasing out of incentive and corporate tax should go together," a source said.
The government has done away with a lot of deductions and exemptions such as Export Oriented Units (EOU), Software Technology Parks (STP), infrastructure tax holiday, special economic zone (SEZ) tax holiday. While the tax holiday is set to end in 2020, all the exemptions and deductions which are being reduced in a phased manner should largely be over by 2023-24. "By the time the tax concessions are eased out, the large corporate will be given the benefit," an official said.
The task force comprising six members was set up in November, 2017 after Prime Minister Narendra Modi said that more than half-a-century-old Income Tax Act needs to be redrafted and a new DTC needs to be introduced. The first convenor of the task force Arbind Modi was replaced by Central Board of Direct Taxes (CBDT) member Akhilesh Ranjan after the former retired in September last year, leaving the report in limbo. Headed by Ranjan, the tax force has Girish Ahuja, chartered accountant, Rajiv Memani, chairman and regional managing partner of EY, Mukesh Patel, tax advocate, Mansi Kedia, consultant at ICRIER and G C Srivastava, retired bureaucrat as members.
The work on DTC had started during the UPA government which introduced the Bill in the Parliament in 2010. It, however, lapsed with the dissolution of 15th Lok Sabha.
THE CODE OF WEALTH
- New Direct Tax Code being drafted as per current economic needs of the country
- New DTC to replace Income Tax Act, 1961
- Existing law covers personal tax, corporate tax, capital gains
- Inheritance tax under discussion, unlikely to be brought back
- Inheritance tax on inherited property, jewellery, etc, was axed in 1985
- Tax varied between 7.5% and 40%, highest slab at 85%
- DTC panel to submit its report by May end
- New government can suggest changes to DTC
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