[ By Kavita Krishnan ]The Government could boost its revenues by more than Rs. 55,000 crore if it implements a task force report that recommends a complete rejig of income tax slabs and capital gains tax regime.The government has started examining the report of the task force on direct taxes, and it is expected that some its recommendations may be placed in the upcoming budget.The report,...
The Government could boost its revenues by more than Rs. 55,000 crore if it implements a task force report that recommends a complete rejig of income tax slabs and capital gains tax regime.
The government has started examining the report of the task force on direct taxes, and it is expected that some its recommendations may be placed in the upcoming budget.
The report, which is yet to be made public, has suggested a radical shift to taxation approach by suggesting no prosecution or re-opening of assessment for people who declare and pay higher income tax for a past period of up to six years with interest and 50% penalty. According to sources, it has been seen that taxpayers do not pay higher tax for a past period for fear of re-opening of assessment and prosecution.
The report has also suggested new income-tax slabs of 10% for people earning up to Rs. 10 lakhs per year, 20% for those with incomes of over Rs. 10 lakhs and up to Rs. 20 lakhs, 30% for incomes of over Rs. 20 lakhs and up to Rs. 2 crore, and 35% for individuals earning more than Rs. 2 crore. It has not suggested any change to current income tax exemption limit.
The current Income Tax rates are 5% plus 4% cess for people earning between Rs. 2.5 lakh and Rs. 5 lakh, 20% plus 4% cess for incomes of more than Rs. 5 lakhs up to Rs. 10 lakhs, and 30% plus 4% cess for those earning over Rs. 10 lakhs.
The task force has suggested removal of surcharge that ranges between 15% to 37%. It has also proposed putting a ceiling on deductions available to individuals to Provident Fund, medical and education expenses, housing loan and charity to bring efficiency gains. Presently, individuals can avail a host of deductions in lieu of interest on savings in fixed deposits, equity-linked savings schemes and insurance. The task force has suggested removal of deduction available in lieu of interest and rentals.
On the capital gains tax regime, the task force has suggested three categories: equity, non-equity financial assets, and all others including property. Indexation benefits are proposed to be restricted to non-equity financial assets and all other assets categories.
Tax of 10% on Long-term Capital Gains (LTCG) has been proposed for gains on sale of equity assets held for more than 12 months. For equities held for a shorter period, 15% short-term capital gains tax has been proposed.
For non-equity financial assets that are held for more than a period of 24 months, a LTCG of 20% with indexation has been proposed for gains on sale. In case of all other assets, a 20% tax with indexation on gains on sale post holding a period of 36 months has been proposed.
At present, equities, preference shares, equity-based mutual funds, zero coupon bonds, Unit Trust of India units are considered long-term assets if held for a period of more than 12 months. Debt-oriented mutual funds, jewellery held for a period of over 36 months are treated as long-term. Real estate held for over 24 months is treated as a long-term asset.
The task force has not suggested discontinuation of securities transaction tax levied on equities. It has suggested changes to taxation of employee stock option plans to incentivize startups.
The report has suggested 25% tax for foreign companies and a branch profit tax rate of 15% if these are repatriated. It suggested scrapping of dividend distribution tax, and instead tax dividends in the hands of recipient. It has also suggested widening of presumption taxation to enhance tax base.
The report called for public rulings. The task force, with Central Board of Direct Taxes member Akhilesh Ranjan as Convenor and Chief Economic Advisor K Subramanian as member, had submitted its report on August 19.