DTC- CASE FOR REMOVING EXEMPTIONS AND DEDUCTIONS

Huge amount of revenue is lost to the exchequer by way of tax  exemptions  and  deductions,  which  aggregated  to  more  than  Rs.1,50,000  crores. The  Department  have  submitted  that  the  revenue foregone  in  respect of  corporate  income  tax during  the  year  2009-10 increased to Rs. 79,554 crores, while the same for personal income tax was  Rs.  40,929  crores.         Revenue  foregone  on  account  of  direct  tax incentives / deduction given to export promotion schemes etc. amounted to a whopping Rs. 30,000 crores and more during this period.  Facts are so  evident  that  it  requires  no  over-stating  that  tax  concessions  and exemptions  provided  in  general  have  been  huge  and   phenomenal, amounting to more than half of the total direct tax collections in 2009-10. If the aggregate exemptions in both direct and indirect taxes is taken into account, it works out to a massive Rs. 5,02,299 crore (2009-10), which is almost 80% of the total revenue collections.  Such exemptions have been increasing, leaving an adverse impact upon revenue buoyancy.

The Standing Committee on Finance therefore, recommended that while formulating the proposed Direct Taxes Code, the Government should review the present regime of tax  exemptions and deductions, which is obviously loaded in favor of corporates and big tax payers at the expense of small tax payers and the salaried class.  Thus, keeping in mind the fact that most of these exemptions have outlived their purpose, and in the light of the glaring facts cited above, it would be just and equitous to put in place a Policy  on Exemptions,  which  would  substantially  reduce  the  percentage  of  tax foregone but at the same time encourage household savings, foster social security and is generally favourable to small tax payers.  The revenue thus retrieved  may be utilized to fund Government‘s            developmental programmes, particularly in agricultural sector

Rationalisation  of  tax  incentives  has  been  attempted  in  the  DTC  by phasing out  profit linked deductions and replacing them with investment linked deductions in the case of businesses.  To maintain a minimum level of tax payment from all companies, the MAT rates have been kept at 2/3rd (i.e.@20%) of the nominal rate (of 30%).  At the same time the rates have been moderated for all businesses by bringing them down  to 30% as against the current overall rate of 33.2%.  For individual tax payers, the tax deductions have been rationalised so that they are available for savings for social security i.e. for provident funds, superannuation funds, gratuity funds and pension funds