It also plans to introduce a special court for black money related cases to deter tax evaders.
The tax rate for the fourth slab is proposed at 35 per cent. The move to introduce a fourth slab will undo a 1996-97 decision when the then government had settled for a three-slab income tax system.
In an effort to soak the super rich, the code, which is the largest revision of the Income Tax Act of 1961, also plans to levy a wealth tax for those with a net worth of above Rs 50 crore at the rate of 0.25 per cent of their wealth. Further, dividend earned above Rs 1 crore would be taxed at a rate of 10 per cent.
To ensure more houses are given on rent, the tax structure has introduced a disincentive to keep them vacant. Instead of allowing vacant houses to be assessed only on the rental value of comparable stock of houses, the code proposes to charge them at the higher of the rental value or 6 per cent per annum of ratable value fixed by the local authority.
The DTC has retained all elements of the progressive recommendations made by the Parthasarathi Shome committee on GAAR and on retrospective taxation. This would provide relief to cases such as Vodafone in the future.
But foreign companies will have to pay tax if they buy into an Indian company and as a result 20 per cent of the global assets of the new entity is located in India. The 2010 version of the bill had proposed a threshold of 50 per cent but the Cabinet note quotes the Vijay Kelkar committee - appointed by Finance Minister P Chidambaram - which had suggested that "given the low-tax to GDP ratio and the existing fiscal crisis there is absolutely no fiscal space for such large revenue losses".
However, "exemption is proposed to be provided for transfer of small shareholdings up to 5 per cent outside India," the code says.
The government has accepted 153 of the 190 recommendations made by the parliamentary standing committee on finance. The finance ministry has also accepted the changes made in the Finance Act 2011, 2012 and 2013 in the new code, now likely to be tabled by the end of the monsoon session.
On personal income tax, the committee had asked for the minimum tax rate to kick in from Rs 3 lakh. But the finance ministry has pointed out that "the recommendation will result in huge losses. The total revenue loss on account of recommended changes in personal income tax slab and removal of cess works out to be Rs 60,000 crore approximately".
The code has retained the 30 per cent tax on corporates, as proposed in DTC 2010 and agreed to by the standing committee. It has also proposed what it calls ring-fencing of losses from businesses availing investment-linked incentive.
"Losses under capital gains, speculative businesses and horse race are proposed to be carried forward for a period of 7 years as against indefinite period as provided earlier. This would help in preventing tax base erosion by manipulation of losses," the code says.
Among the measures related to curbing black money, the code has proposed doing away with the Settlement Commission as it was seen to be often misused. "It has not served its intended purpose," the DTC says.
TAXING TIMES
* Minimum income tax slab to remain at Rs 2 lakh
* 30% tax on corporates to stay
* Income above Rs 10 crore to be taxed at 35%
* Dividend earned over Rs 1 crore to be taxed at 10%
* Special court to try cases related to black money
* Vacant houses to be taxed at the higher of the rental value or 6 per cent per annum of ratable value fixed by local authority
* Foreign companies to pay tax if they buy Indian company and 20 per cent of global assets of new entity is located in India
Source: http://www.indianexpress.com/news/new-tax-code-targets-super-rich-owners-of-two-homes/1158524/0
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