The revised draft of the direct tax code, made public on Tuesday, proposes substantial

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relief to individuals. Their long-term savings like provident fund, life insurance proceeds and retirement benefits will not be taxed, as per the revised draft.

In the original draft released last August, the government had proposed to tax long-term savings. The new draft thus marks a change for the better for the individual taxpayer.

It also offers a change in the original draft’s proposal on minimum alternate tax (MAT) on companies. They will continue to pay the tax based on their book profits and not on their gross asset value, as was proposed earlier.

The revised draft was formulated after consultations with stakeholders. But this draft, too, will go through another round of consultation. The government hopes to complete the round by the end of this month and bring legislation on the code in the monsoon session of Parliament, beginning next month.

If Parliament passes the bill on the code in this financial year, the code will come into force on April 1 next.

The new draft, basically a 35-page discussion paper on the code, was released after incorporating suggestions made by industry and others. The government received over 1,600 comments and suggestions on the first discussion paper.

Revenue secretary Sunil Mitra said the revised draft sought to address major concerns of stakeholders. These include treatment of MAT, taxation of long-term savings and capital gains. “But there is no change in the basic philosophy of the code,” Mitra said.

The revised draft has not changed the tax rates originally proposed for either individuals or companies. “The rates are to be dealt with in legislation and is not part of the revised discussion paper,” Mitra said.

In the first draft, the government had proposed MAT at 0.25 per cent of gross asset value for banking companies and 2 per cent for all others. Industry captains across the spectrum had expressed concern and pressed for MAT based on income and not asset value. In the latter case, they argued, the tax would have nothing to do with particular year’s income or turnover.

For individuals, the revised draft proposes that provident fund, the new pension scheme administered by the Pension Fund Regulatory & Development Authority and pure life insurance products will enjoy the exempt-exempt-exempt (EEE) status. It means that these products will not be taxed on maturity or withdrawal mid-way.

New unit-linked insurance policies (Ulips) issued after the code becomes operational will not be exempt from tax on withdrawal. But existing units will continue to get the EEE benefit.

The new draft has proposed the EEE benefit also for government provident fund (GPF), public provident fund (PPF) and recognised provident funds. The first discussion paper had proposed to tax all long-term savings on maturity or withdrawal.

The current distinction between short- and long-term investment assets on the basis of the duration of holding will be eliminated. Income from capital gains may be considered as ordinary earning for all taxpayers, including non-residents. This income will be taxed at applicable rates determined by the income bracket.

At present short-term capital gains from buying or sale of securities or equity funds are taxed at 15 per cent and long-term capital gains are exempt from tax. The withdrawal of this regime will raise the tax liability.