After it became clear that the Goods and Services Tax (GST) could not be rolled out by the beginning of the next financial year, hopes were being pinned on the implementation of the Direct Taxes Code (DTC) from April 1, 2012. However, with a Parliamentary panel clearly saying it cannot table its report on DTC in the upcoming winter session, even these expectations look set to be dashed.

“There is no possibility of submitting a report on DTC in the winter session because it has been unanimously decided that we need to consult various ministries and state governments before a final report can be prepared,” a member of the standing committee on finance told Business Standard.

He said, when DTC was proposed, tax situation in the country was encouraging, but the economic situation was very weak now. “The basic question that needs to be answered is whether DTC is competent for such a situation,” the member said.

During the recent meeting of the Parliamentary committee, S S Ahluwalia of Bharatiya Janata Party, Gurudas Dasgupta of Communist Party of India and Bhartruhari Mahtab of Biju Janata Dal asked chairman Yashwant Sinha to tell the Parliament secretariat not to prepare the report till all the members were convinced and agreed to the conclusions.

“More questions have come up. Those need to be answered by ministries before we can conclude the report,” the member added.

Members of the parliamentary committee have asked the secretariat to prepare a detailed comparative report, including the situation in the country in 1961 (when the Income Tax Act took effect), proposals on DTC made in 2009, the contents of the draft Bill prepared by the Union government and changes being contemplated by the standing committee on finance. In the context of high inflation and depreciation of the rupee against the dollar, the standing committee wanted more discussion on the issue.

The DTC Bill was tabled in Parliament in 2010 with an aim to reduce tax rates, but expand the tax base, by minimising exemptions. The finance ministry had in 2009 come out with a draft on the DTC Bill, some provisions of which drew strong criticism from industry as well as public.

To address those issues, the ministry brought out the revised draft, dropping earlier proposals of taxing provident funds on withdrawals, and levying Minimum Alternate Tax on companies on the basis of their assets.

However, personal income tax slabs proposed in the Bill were narrower than what was proposed in the first draft, but were wider than the existing ones.

The new Direct Tax Code Bill proposed to tax incomes over Rs 2 lakh and up to Rs 5 lakh in a year at 10 per cent , more than Rs 5 lakh and up to Rs 10 lakh at 20 per cent and beyond Rs 10 lakh at 30 per cent.

Currently, income over Rs 1.80 lakh up to Rs 5 lakh attracts 10 per cent income tax, over Rs 5 lakh and up to Rs 8 lakh 20 per cent and beyond Rs 8 lakh 30 per cent income tax.

The proposed tax slabs are much lower than originally suggested in the first draft DTC Bill — 10 per cent for over Rs 1.6 lakh and up to Rs 10 lakh, 20 per cent for over Rs 10 lakh and up to 25 lakh and 30 per cent for income above Rs 30 lakh.

When enacted, DTC will replace Income Tax Act, 1961 which has become archaic and unwieldy in the context of modern post-liberal Indian economy. (Business Standard)