Right from compulsory spending on social welfare activities to mandatory requirement of woman director on boards to stronger disclosure regime, the Companies Act, 2013 has been finalised after exhaustive consultations with various stakeholders including general public.
To protect the interests of investors, the government has made it mandatory for public deposit-taking companies to insure such deposits, among others. The ministry has rejected the recommendations of the Standing Committee on Finance, headed by senior BJP leader Yashwant Sinha, to raise the income tax exemption limit to Rs 3 lakh and to adjust other slabs saying that it will lead to an annual loss of Rs 60,000 crore to the exchequer.
The Committee had proposed no tax on income of up to Rs 3 lakh per annum; 10 per cent for Rs 3-10 lakh; 20 per cent, for Rs 10-20 lakh and 30 per cent on annual income beyond Rs 20 lakh.
"The recommendation is not acceptable as it will result in huge revenue loss. The total revenue loss on account of recommended changes in PIT slabs and removal of cess works out to Rs 60,000 crore approximately," said the revised Direct Taxes Code Bill - 2013.
As per the current structure, there is no tax on income of up to Rs 2 lakh per annum; 10 per cent on Rs 2-5 lakh; 20 per cent on Rs 5-10 lakh and 30 per cent on income beyond Rs 10 lakh.
Although the revised DTC draft was to be taken up by the Cabinet in August 2013, it did not come up for discussion because of differences over introducing a fourth slab for the super-rich.
The DTC bill was introduced in the Lok Sabha in 2010 and later referred to the Committee. In view of the panel's recommendations and other amendments to I-T Act, the government decided to revise the DTC and present a fresh bill.
The Finance Ministry said that of the 190 recommendations made by the Committee, 153 are proposed to be accepted wholly or with partial modifications.
Recommendations which have been accepted include simplicity and comprehensibility of both structure and content thereby making the statute more user friendly and ensuring tax buoyancy by tapping high capacity/income and evasion prone segments.
The ministry did not agree with the suggestions that the rate of tax for life insurance companies may be kept at 15 per cent instead of the proposed 30 per cent and linking of tax exemption limit to the Consumer Price Index or retail inflation.
It also did not accept the Committees suggestion to abolish Securities Transaction Tax (STT), saying that the levy is required to regulate day trading. Further, it said, the rate of STT has already been reduced significantly.
The revised DTC also said the income from a house property, which is not used for business or commercial
purposes, will be taxed under the head 'income from house property'.
The Ministry said 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.
The Wealth-tax is proposed to be levied on individuals, HUFs and private discretionary trusts at the rate of 0.25 per cent. The threshold for the levy of in the case of individual and HUF is proposed at Rs 50 crores.
The draft Code also does not provide for the machinery of Settlement Commission as it has "not achieved the intended purpose of early settlement of cases and additional revenue realisation".
On taxation of indirect transfer of assets, the DTC Bill, 2010 provides for a 50 per cent threshold of global assets to be located in India for taxation. "This threshold is too high. There could be a situation that a company has 33.33 per cent assets in three countries but it will not get taxed anywhere. Accordingly, the revised Code provides for a threshold of 20 per cent of global assets
to be located in India for taxation..." it said.
Besides, exemption is provided for transfer of small shareholdings (up to 5 per cent) outside India.
On deduction for CSR expenditure in backward regions and districts, the ministry said it can't be allowed as a business deduction as it is an application of income.