Highlights of the Bill

  • The Bill replaces the Income Tax Act, 1961.
  • The Bill widens income tax slabs for individuals.  Income between Rs 1.6 lakh to Rs 10 lakh will be taxed at 10%, between Rs 10 lakh and Rs 25 lakh at 20%, and that over Rs 25 lakh at 30%.
  • The Bill removes several tax deductions currently allowed such as those on investments in life insurance or provident funds.  Interest paid on housing loans shall no longer be tax deductible.
  • Companies will be taxed at 25% of business income.  The Bill also imposes a minimum alternate tax of 2% on the assets of companies and a dividend distribution tax of 15% on domestic companies.  Foreign companies shall pay an additional branch profits tax of 15%.
  • Unincorporated bodies are taxed at 30% of income while non profit organisations are taxed at 15% of any surplus of income over expenditure.
  • The Bill raises the wealth tax exemption limit from Rs 15 lakh to Rs 50 crore and widens the ambit of wealth tax to include financial assets.

Key Issues and Analysis

  • It is not possible to assess the net impact on government revenues of the new tax proposals in the Code.  While the government claims that the tax changes proposed by the Code will have no net effect on tax revenues, it has not released adequate data to support this claim.
  • The Bill lowers the tax rate for those who earn between Rs 3 lakh and Rs 25 lakh, as compared with the Act.  However, those who earn less than Rs 3 lakh will pay the same tax rate as before while having a narrower range of tax deductible investment options to choose from.
  • Under the Bill, companies will be charged a minimum alternate tax on their assets, rather than profits as is currently the case.  This implies that even sick and loss making companies may have to pay taxes.
  • The Bill removes a range of tax incentives allowed to companies under the Act, such as those for investments in backward areas and exports, as these could distort investment decisions.   However, the removal of such incentives may adversely affect the profitability of units which had already made investments based on such promises.

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