The government appointed a committee under the chairmanship of Mr. Kelkar to examine the structure of direct and indirect taxes and to make recommendations for making the tax system more broad-based, elastic and simplified.
Major recommendations of this committee are the following:
a. Income tax exemption limit be raised to Rs. 1 lakh from Rs. 50,000 presently.
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b. Income tax rates proposed at 20% for earnings of Rs. 1-4 lakh and 30% for over Rs. 4 lakhs.
c. Tax threshold for senior citizens and widows at Rs. 1.5 lakh.
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d. Abolition of dividend tax, long-term capital gains tax and wealth tax.
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e. All exemptions on savings and other income, except for handicapped, be lifted.
f. Phasing out tax breaks on home loans in 3 years.
g. No standard deduction for salaried class.
h. Corporate tax rate be reduced to 30% from 36.75% for domestic companies and to 35% from 40% for foreign companies.
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i. Abolition of Minimum Alternate Tax (MAT)
j. Three slabs of custom duties-zero percent for life saving drugs, 10% for raw materials and intermediate goods and 20% for consumer durables, within 2 years.
k. Expand to four slabs of custom duties by 2006-07-5% or raw materials, 8% on intermediaries, 10% on finished goods, 20% on consumer durables. Life saving drugs would continue to attract 0% duty even after 2006-07.
l. On excise duty front, it recommended 0% duty for life saving drugs, security on food items, 6% per processed food products, 20% for motor vehicles, air conditioners and created water and 14% for other items for demerit goods like tobacco and pan masala, it prescribed excise at 32%.
m. CENVAT is brought down to 14%.
The BJP’s committee headed by General Secretary Mr. Rajnath Singh rejected most of these recommendations and hence it seems very unlikely that much would be done by the NDA government to implement these recommendations.
