DTC

Budget and the DTCT.C.A.RAMANUJAM Share  ·   print   ·   T+
T.C.A.RAMANUJAM Great expectations were roused among assesses,
auditors and advocates when the Direct Tax Code (DTC) was brought on
the anvil in the place of the half a century old Income Tax Act, 1961.
The then Finance Minister thought that the Code will herald a fiscal
revolution and advised the public to ignore the old Act and read only
the DTC.
The euphoria generated by the introduction of the DTC in Parliament
can be attributed to the way the draft Code prepared the taxpayer for
a certain degree of stability in tax rates and slabs. All rates of
taxes were proposed to be prescribed in the Schedule to the Code
itself obviating the need for an annual Finance Bill. The initial slab
was fixed at 10 per cent of the income between Rs 1,60,000 and Rs
10,00,000, the next slab of 20 per cent on incomes up to Rs 25,00,000
and the final slab of 30 per cent on income above Rs 25 lakh for
individuals.
For companies the rate was indicated at 25 per cent. These slabs were
definitely liberal by any standard. It would have certainly led to
loss of Revenue.
Slabs and Rates
The DTC is meant to come into effect from April 1, 2012. Finance Act,
2011 modified the slabs and revised the same as Rs 1,90,000 to Rs
5,00,000 (10 per cent), Rs 5 lakh to Rs 8 lakh 20 per cent and Rs 8
lakh and above 30 per cent. No announcement was made about the fate of
the slabs and rates prescribed in the DTC and no assurance was given
that they will prevail with effect from April 1, 2012.
Analysts were left to infer that Government was having second thoughts
on the liberal slabs laid down in the DTC. Budget 2012 will be
presented on February 29, 2012. It will tell us about the future of
the DTC. But Mr Pranab Mukherjee can usher in the golden era for the
taxpaying public.
He can achieve the object of laying down permanent slabs discarding
the procedures followed hitherto and also discarding the method of the
DTC. The most worrying concern of the taxpaying public in India today
relates to the impact of inflation.
The Reserve Bank of India raised the bank rates 13 times. Inflation
has not come down substantially. Consumer price inflation is around 8
per cent. The GDP deflator measures inflation in the domestic economy
and the average inflation rate between 1969 and 2010 is indicated as
7.99 per cent.
Since the average rate of inflation is around 8 per cent to 9 per
cent, it stands to reason that the tax slabs should be adjusted on a
permanent basis to the rate of inflation in the economy. This is what
Dr Manmohan Singh did with reference to taxation of capital gains. He
introduced the concept of cost inflation index in 1992.
cost inflation index
Two decades have gone by and the system is working efficiently and
effectively in the field of capital gains taxation. The present FM
should take a leaf out of the then FM's book and introduce the cost
inflation index for fixing the slabs. This will obviate the need for
revising the slabs on an ad hoc basis.
The slabs will be automatically indexed without any room for
arbitrariness. Nobody can complain on the ground that inflation is
impeding their incomes. This one revolutionary piece of legislation
will earn for Mr Pranab Mukherjee a permanent place in the fiscal
history of India. He will also earn the gratitude of the taxpaying
public in the 150 {+t} {+h} year of the income tax legislation.
In the budget of 2011, the FM has gone beyond the DTC and conferred
benefit on those with incomes below Rs 5 lakh. These persons need not
file their returns of income. The newly introduced Section 139 (1C)
refers to any class of cases to be notified for this purpose. This was
not thought of by the framers of the DTC.
It released the bulk of the salaried taxpayers from the legal
obligation to file tax returns. It reduced the work load of Senior
Officers and enhanced their productivity.
The same way, the FM can travel beyond the contours of the DTC and
rope in all peddlers in black money and in money laundering.
Government has tabled the Prevention of Money Laundering (Amendment)
Bill in 2011 in Parliament seeking to introduce the concept of a
‘corresponding law' to link the provisions of Indian law to those of
other countries and to provide for transfer of proceeds of crime
committed in any manner in India.
The Bill enlarges the definition of money laundering to include
concealment, acquisition, possession and use of proceeds of crime as
criminal activities and to remove the existing limit of Rs 5,00,000 in
fine.
The question that arises is whether tax evasion will fall in the
category of money laundering crimes. A clarificatory amendment in the
Bill will obviate all doubts and send the fear of the taxman to those
holding secret accounts in foreign banks.


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Introducing the cost inflation index for fixing the tax slabs will
obviate the need for revising them on an ad hoc basis.

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(This article was published in the Business Line print edition dated
January 2, 2012)