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MAT goes back to old way

The government has neared the last hurdle to introducing a simple, long-term tax regime for corporates with the final discussion paper on the Direct Taxes Code. HT reports.Tax Code juggles continuity and change

business Updated: Jun 16, 2010 02:04 IST
HT Correspondent

The government has neared the last hurdle to introducing a simple, long-term tax regime for corporates with the final discussion paper on the Direct Taxes Code (DTC).

The paper released on Tuesday proposed changes on nine major issues, but left many of the contentious issues unchanged, especially a plan on minimum alternate tax (MAT) that companies feared could eat into their profits.

The new draft discussion paper has proposed to do away with controversial move to calculate MAT on the basis of "gross assets". Instead, MAT would now be computed on book profits as is the case now.

MAT was introduced in 1998 to address inequity in taxation of Indian corporations. Many companies, despite making book profits as per their profit and loss account, were hardly paying any tax because income computed as per provisions of the Income-tax Act, was either nil, or insignificant.

The first draft of the DTC had proposed to impose MAT on gross assets rather than on profits triggering howls of protest from India Inc that pointed out that it would be a disincentive for investment.

The new draft has now proposed to go back to the original system of calculating MAT on the basis of book profits.

"It is very heartening to see that the government has taken care of all the major recommendations especially on Minimum Alternate Tax," Dinesh Kanabar, Deputy CEO of tax audit firm KPMG.

The draft DTC along with the discussion paper was first released in August last year for public comments.

The government on Tuesday released the revised discussion paper on the draft DTC, which is being placed in the public domain to seek responses on the modified proposals.

The major issues which have been addressed relate to MAT on gross assets, tax treatment of savings — exempt exempt tax (EET) against exempt exempt exempt (EEE) basis, status of double tax avoidance agreements, taxation of income from house property on a presumptive basis, tax treatment of capital gains and of non-profit organisations among others

The first draft had drawn criticism from certain quarters for proposals to tax long-term savings at the time of withdrawal, imposing MAT on the basis of gross assets as against profits at present and its silence on offering rebates for home loans.

Revenue Secretary Sunil Mitra said the tax rates would be made known only in the proposed Act, a bill for which will be introduced in Parliament in the coming monsoon session.

"If Parliament procedure is complete and it becomes a law, it will be implemented from April 1, 2011," Mitra told reporters after releasing the revised DTC draft.

The government, Mitra said, had received 1,600 comments on the first draft released last year. The bill, overhauling India's direct tax laws, will be referred to the standing committee of Parliament after introduction.

The Parliament panel, he added, would again consult the stakeholders, Mitra said.

The first draft had proposed a sweeping rejig of tax slabs to benefit each one of India's 3.15-odd crore tax payers

Under the proposed norms in the first draft income tax would be charged at 10 per cent tax for incomes between Rs 1.6 lakh and Rs 10 lakh, 20 per cent between Rs 10 lakh and Rs 25 lakh and 30 per cent beyond Rs 25 lakh.

Besides, the ceiling on tax savings investments is proposed to be raised to Rs 3 lakh annually from Rs 1 lakh now.