The government has released the revised discussion paper on Direct Tax Code (DTC) wherein concerns expressed on few of the key areas, as identified by the finance minister, have been proposed to be addressed.
Minimum Alternate Tax (MAT)?which was earlier proposed to be levied on gross-asset basis— has been a matter of concern, especially for capital intensive and new businesses. It is now proposed to restore MAT with reference to book profits.
In respect of capital gains, a mid-way path is being proposed wherein assets will be classified as Long- Term and Short-Term and taxed under a new regime. Ideally, in this context the Securities Transaction Tax (STT) should have been done away with as now all equity transactions resulting in capital gains would be subject to tax. However, STT is proposed to be kept albeit on a calibrated basis to be specified.
A major concern vis-?-vis companies having international transactions has been the treaty override provisions. Broadly, the erstwhile tax position of domestic tax law or the tax treaty, whichever is more beneficial, would continue to apply. However, a new concept of limited treaty override has been proposed in respect of general anti avoidance rules, controlled foreign corporations and branch profit tax, wherein DTC may override the tax treaties.
Another issue which has been a matter of concern for the industry has been the introduction of General Anti-Avoidance Rules (GAAR). Again, it appears that GAAR provisions will be a reality now though in a different form with prescribed conditions under which the same may be invoked. This is likely to be one of the potential litigative areas as the Indian economy progresses and companies engage in complex commercial / international transactions.
In respect of wealth tax, the erstwhile provisions under the Wealth Tax Act are proposed to be restored with the intent to levy wealth tax on unproductive assets for all the tax payers except not for profit organisations. Further, details need to be evaluated as to which assets and up to what limits would be covered under the proposed wealth tax regime.
One proposal which is surely going to make the finance minister popular amongst the common man is the restoration of Exempt Exempt Exempt (EEE) regime in respect of all the existing savings instruments. Go forward EEE regime would be restricted to provident fund, pension and life insurance products subject to the conditions to be prescribed in this respect.
Another welcome step is that few of the specified retirement benefits, e.g. gratuity, etc, will continue to be exempt subject to specified monetary limits. Also, the restoration of the popular deduction for interest paid on housing loan up to Rs. 1.5 lakh in respect of the self occupied house property would surely bring some cheer to house owners.
Finally, the devil lies in the details and the revised Draft DTC needs to be examined as to how much relief is being finally granted and what is more in store, which would require further deliberation.
?The writer is executive director, KPMG. Views expressed are personal