Cabinet defers Direct Taxes Code bill, says timing not right

The union cabinet on Thursday deffered a decision on the direct taxes code (DTC) bill that proposes to tax super rich at higher rates following some concerns that timing was not right for such a measure.

The DTC Bill 2013, that proposes to re-write the over 50-year old income tax law, was expected to be moved for the consideration of the parliament in the ongoing monsoon session.

The bill proposes to tax incomes in excess of 10 crore at 35% rate against current rate of 30%. In the budget, finance minister P Chidambaram had imposed a surcharge of 10% on those with taxable income in excess of 1 crore, pegging the number of such taxpayers at 42,800.

The code also proposed to impose 10% tax on dividend income in excess of 1 crore, aimed at bringing under the tax net high earners whose primary income is dividends.

At present, dividends are tax free in the hands of investors but the entity distributing dividends has to pay a dividend distribution tax at the rate of 15%.

The prime minster's office (PMO) also had some reservations on the crucial proposals..

Some of the proposals talked of reintroducing some tax proposals that were removed by PM Singh as finance minister in 1993, said one senior government official explaining the objection the PMO has to the proposal.

There is a feeling that the timing is not right to tax the rich at higher rates in the current environment of downbeat sentiment and declining growth, the official said. The bill also proposes to tax wealth in excess of 50 crore at the rate of 0.25%.

Growth forecasts for the current year have fallen to around 5% now, same as the decade low of 5% recorded last financial year, though the government still maintains the GDP could grow at least 5.5% this year.

The DTC bill has been vetted by Parliament's standing committee on finance, which is headed by BJP leader and former finance minister Yashwant Sinha.

The government has accepted or partially accepted over 150 out of 190 suggestions made by the committee though it has not agreed with the recommendation to widen the income tax slab rates.