Kelkar retains sting despite cuts

The final report of the Kelkar panel on direct taxes is not very different from the initial consultation paper. It recommends sweeping changes to integrate personal and corporate taxes, reduce rates and compliance costs and make extensive deployment of information technology in tax administration.
In personal income-tax, the major departures from the original recommendations relate to concessions on housing and tax liability of senior citizens and retention of the present exemption for conveyance allowance up to Rs 9,600.
The deduction for interest payments on housing loans, instead of being abolished as per the original proposal, has now been proposed to be reduced to Rs 50,000 from the present level of Rs 1,50,000.
Corporate tax liability is slated to go up, despite reduction in the rate from 36.5% to 30% (35% for foreign companies). The committee retains its original recommendation to tax profits as reported under Company Law.
However, the distinction between unabsorbed depreciation and unabsorbed business losses would be removed and business loss would be allowed to be carried forward indefinitely.
Export incentives will be phased out as recommended by the Prabhu committee. The controversial recommendation to eliminate 10A/10B concessions has been retained, except in the case of computer software.
In the case of computer software, retention of these benefits have been recommended as an interim measure. Since the committee could not come to a unanimous conclusion on how to treat 10A/10B, it has given two alternatives.
Concessions under 80IA and 80IB will go with immediate effect, not under a sunset clause. Most other exemptions also face the axe.
The personal income-tax package comprises the following measures:
Raise the generalised exemption limit from Rs 50,000 to Rs 1,00,000 for all individuals and HUF taxpayers. Senior citizens and widows would, however, have an exemption limit of Rs 1,50,000.
The existing three slabs will be replaced with two. Incomes between Rs 1,00,000 and Rs 4,00,000 will be taxed at 20% and incomes above Rs 400,000 at the marginal rate of 30%.
Dividends received from Indian companies will be fully exempt. So will be long term capital gains on the equity of listed companies. Income-based deduction for medical insurance will be converted into a tax rebate at the rate of 20%, subject to a maximum of Rs 3,000.
Tax rebate schemes under Section 88 for savings will go, as will rebate under 88 B for senior citizens and under 88C for women below 65 years of age. However, the deductions for handicapped under 80DD and 80U will continue.
The residential status "resident but not ordinarily resident" will go.
For corporates, the general rate of depreciation for plant and machinery will be reduced to 15%. Assorted concessions given for scientific research, under Section 35 and benefit under Section 33AC will go.