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Kelkar Committee Report on Direct Taxes

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Vincent

The Vijay Kelkar Committee report on reform of direct taxes has been filed with the Government.

Salient Features:

Some of the salient features of the recommendations are:

(i) Abolition of standard deduction under s. 16 from the salary income.

(ii) No tax incentives for savings

(iii) All deductions under Chapter VIA to go except deductions under s. 80D, 80DD and 80H.

(iv) Exemption limit to be raised from Rs. 50,000 to Rs. 1 lakh.

(v) Rates of income tax.

(a) Only two slabs:

i. Rs. 1 lakh to Rs. 4 lakhs 20%

ii. Above Rs. 4 lakhs 30%

(b) Corporate tax at 30%

(c) Tax on foreign companies at 40%

(d) Scrapping MAT under Section 115JB

(vi) New exemptions

(a) No tax on dividend income

(b) No tax on long-term capital gains

(c) Abolition of Wealth tax.

(d) Abolition of MAT under Section 115JB

(vii) Depreciation - Rates of depreciation allowance

(viii) The unabsorbed depreciation to be merged with the business loss and allowing carry forward for indefinite period instead of 8 years as at present.

Agricultural Income tax

The Central Government should be empowered to levy tax on agricultural income. The tax so collected to be distributed to states.

Database

It is proposed to set up National Tax Information Network [TIN] to maintain a database with the latest information technology system.

Refunds

The issue of refunds of tax to be speeded up. The payment of refunds to be through banks.

Reactions

The Committee's recommendation on abolition of deduction under Section 80HHC etc. on export income is opposed by ICCI and ESC as in their view it may result in decline of exports. It is felt that many exporters are surviving because of tax holiday and other fiscal incentives. The abolition of these incentives will make Indian exports no longer price competitive in the international market.

Similar reactions have been received from certain trade and industry associations like MAIT, TEMA, CETMA and others.

Removal of Status of 'Not Ordinarily Resident'

The Committee has also recommended to remove s. 6(6) of the I.T. Act, so that there is no status of 'Not Ordinarily Resident'

Reaction

If this part of recommendation is expected the result will be that a non-resident staying in India for over 182 days will become taxable not only on income accruing to him in India but also on his global income. For example a person returning from abroad after 2 years and staying in India for...

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