CBDT Releases Direct Taxes Code 2013 - Futile Exercise?
THE Finance Minister, in his speech on Interim Budget 2014-15 on February 17 2014, made the following observation on Direct Taxes Code (DTC):-
"Revenues are of paramount importance. The best source of revenue is taxes and for that we need modern tax laws. I am disappointed that we have not yet been able to introduce GST. I leave it to you to answer the question, who blocked the GST when an agreement on the game-changing tax reform was around the corner? We have also got ready a Direct Taxes Code that will serve us for at least the next twenty years. I intend to place it on the website for a public discussion without partisanship or acrimony. I appeal to all political parties to resolve to pass the GST laws and the DTC in 2014-15."
Accordingly, CBDT has placed the DTC, 2013 on the Department's web site. A write-up on the significant changes in the proposed DTC, 2013 is also placed on the website. Comments, if any, on proposed DTC, 2013 may be sent on email ID: dtc13-dor@nic.in.
But shouldn't it be DTC 2014?
The history : The Income-tax Act was passed in 1961 and has been amended every year through the Finance Act. The Wealth-tax Act was passed in 1957 and has also been amended many times. Numerous amendments have rendered the two Acts incomprehensible to the average taxpayers. Besides, there have been several policy changes due to change in economic environment, complexity in the market, increasing sophistication of commerce, and development of information technology. There has also been a multitude of judgments (at times conflicting) rendered by the courts at different levels. This necessitated drafting of a Code to consolidate and amend the law relating to all direct taxes.
The Direct Taxes Code Bill, 2010 was introduced in the Lok Sabha on 30th August, 2010. The Bill was referred to the Standing Committee on Finance (SCF) on 9th September, 2010 for examination and report thereon. The SCF presented its report to the Speaker, Lok Sabha in March, 2012. A large number of recommendations of the SCF along with other suggestions which were forwarded at the examination stage have been accepted by the Government.
Since the Direct Taxes Code Bill, 2010 was introduced in the Parliament, amendments were carried out in the Income-tax Act, 1961 and the Wealth-tax Act, 1957 through Finance Acts, 2011, 2012 & 2013. These amendments were consistent with the policy laid down in the DTC Bill, 2010. Incorporating these amendments in the DTC Bill, 2010 would require a large number of official amendments making the Bill incomprehensible and the legislative process cumbersome. Hence, it was decided to revise the Direct Taxes Code incorporating all the amendments and presenting it as a fresh Bill. Accordingly, a new revised Direct Taxes Code was drafted.
Significant changes proposed in the Code:
Change in base of Wealth-tax : The DTC Bill, 2010 captured only unproductive assets for levy of wealth-tax. This substantially reduced the base for wealth-tax. To keep the base wide, the revised Code captures all assets for wealth-tax, whether physical or financial, thereby removing the distinction between physical and financial assets, which discriminated against those taxpayers who are conservative and put their money in physical assets. Wealth-tax is proposed to be levied on individuals, HUFs and private discretionary trusts at the rate of 0.25%. The threshold for levy of wealth-tax in the case of individual and HUF shall be Rs.50crores.
Additional tax @10 per cent on recipient of dividend (liable to Dividend Distribution Tax) exceeding one crore rupees : Under the Income-tax Act as well as in the DTC Bill, 2010, the dividend distribution tax is to be levied at the rate of 15%. This favours high net worth taxpayers who pay only a fraction of their earnings as tax on their investments in the capital market. The draft DTC proposes to remove this anomaly by levy of 10% additional tax on the resident recipient if the total dividend in his hand exceeds Rs.1crore.
Settlement Commission killed : Settlement Commission has not achieved the intended purpose of early settlement of cases and additional revenue realisation. At the same time, the backlog of cases has reduced the efficacy of search and survey actions. Accordingly, the draft Code does not provide for the machinery of Settlement Commission.
35 per cent tax rate for individual/ HUF having income exceeding Rs. 10 crore: With a view to maintain overall progressivity in levy of income- tax, the revised Code provides for a fourth slab for individuals, HUFs and artificial juridical persons. In their case if the total income exceeds Rs.10crore, it is proposed to be taxed at the rate of 35%.
The DTC 2013 contains 325 Sections and 23 Schedules. Obviously great amount of work has gone into this mammoth exercise - all for what? If BJP comes to power, they will outright reject this code as the devilish work of a wily Chidambaram, which should not be touched with a barge pole. Any other Government will be concentrating on survival that they will hardly have any time to look at silly legislation like DTC. And what is the point in releasing such a vital document only to get drowned in the cacophony of electioneering?