This is because for the first time, the scope of wealth tax, which has poor compliance history and has become a focus point for the income tax department in the last one year, has been extended to cover all financial assets, including investments in shares, mutual funds and debt instruments.
Official sources said that if the proposal is implemented, receipts from wealth tax could be many multiples of now (just Rs 950 crore in FY14) and would depend on the market value of financial assets in a given year. This, despite the fact that the revised code has lowered the rate of wealth tax from 1% to 0.25%. An official estimate of the possible receipts was not immediately available.
Also, even if the next government does not take up DTC immediately, mere continuation of the existing provisions in the I-T Act would more or less take care of the super rich tax proposal. The 10% surcharge on personal income above Rs 1 crore introduced in Finance Act 2013-14 takes the total tax liability of those coming under the top 30% slab to 33%, closer to the fourth slab of 35% proposed in the revised DTC, explained a government official.
Experts said the revised version of DTC is focusing on the rich as economic growth has slowed down and is adversely affecting the pace of tax collection growth. They also said improving revenue collections from the rich was not one of the initial objectives of the DTC, which were simplification and rationalisation of the direct tax laws.
Targeting one class of tax payers may encourage convoluted tax planning. The proposed change is not in the spirit of encouraging investments in capital markets, said Neeru Ahuja, Partner, Deloitte Haskins & Sells. As per the revised code, wealth tax would cover individuals, Hindu Undivided Families and private discretionary trusts, but not companies.
It, however, remains to be seen whether the revised DTC would be taken up by the next government if there is a change in the ruling coalition. After all, DTC is a document. Discussions on various proposals and responses have certainly helped in policy making. Many of the DTC proposals are already part of the Income Tax Act, said a government official.
Already, the government has made changes in the income tax return to make it compulsory for tax payers to declare their assets and liabilities. The idea was to zero in on individuals, mainly traders and businessmen, who disclose modest income, but own fancy SUVs, houses at posh locations and other assets that clearly do not agree with their reported income.
The proposed 10% surcharge on those receiving dividend above Rs 1 crore would be levied at the hands of the recipient, who now are exempt from any tax as the 15% dividend distribution tax is paid by the company that pays the dividend.