The finance ministry has come out with more changes in the Direct Tax Code draft bill that aims to replace the income tax act of 1961. These new changes in place means that your current tax slabs are unlikely to change for now.
On the other hand, people who have an annual income of above Rs10 crore will have to shell out higher taxes as they would be taxed at 35%. Though, numbers are not currently available on how many people fall in this bracket, tax consultants believe the number to be "insignificant".
This is because, when in the 2013 budget the finance minister introduced the super rich tax on people with income above Rs1 crore, India had only an estimated 42,000 people in this bracket. Now with the slab widening to Rs10 crore and above, the number would come down dramatically, believe experts.
On the personal taxation front, the Standing Committee on Finance, headed by senior BJP leader Yashwant Sinha, had earlier suggested to raise the income tax exemption limit to Rs3 lakh. The committee had also suggested a 10% tax for Rs3-10 lakh; 20 % for Rs10-20 lakh and 30% on income above Rs20 lakh.
But the finance ministry has rejected the proposal saying that the change in slabs would have resulted in an annual loss of approx Rs60,000 crore to the government.
Industry players see it as a good move. Sonu Iyer, Partner & National Leader — Human Capital services, E&Y, said that "retaining the current tax structure is a good move as the widening of tax slabs would have had come at a huge cost to the exchequer, something that the government is not in a position to do."
At present, the exemption limit on taxes has been capped at Rs2 lakh. 10% tax is levied for income between Rs2-5 lakh, 20% on income between Rs5-10 lakh and 30% on income beyond Rs10 lakh.
Apart from this, the finance ministry has also opted to widen the definition of wealth tax by including other assets such as shares, art etc under the ambit which were earlier not included. 0.25% tax will be levied on wealth exceeding Rs50 crore, as opposed to the earlier limit of Rs30 lakh.
Iyer believes that, "this makes tax compliance easier for the wealthy and may also reduce evasion of taxes".
In other changes, government has proposed an additional tax of 10% on dividends exceeding Rs1 crore. The dividend distribution tax is to be levied at the rate of 15%.
Experts believe that this will make high net worth tax payers more accountable.
On the corporate taxation front, the draft has suggested that foreign companies with more than 20% assets in India will be subjected to domestic tax laws. Earlier draft version had suggested that domestic laws should be applicable only if 50% of global assets were in India.
Ketan Dalal, joint tax leader, PwC said that while the original intent was to simplify the language, there are material changes that are sought to be brought about in the existing legislation. "This includes some far reaching ones including wealth tax on virtually all assets (including shares), indirect transfer (some clarity if transfer or small shareholder, but the threshold for underlying company in India is just 20% which is very low), taxability of dividend beyond Rs1 crore, and an expanded list of more stringent provisions in relation to penalties and prosecution."
A final view on the draft will be taken up after a new government is formed.