Direct Tax Code Bill: Highlights & Full Report

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Congress Party seems to have played a masterstroke here. After not so impressive budget, they have announced something that will make the common man scream with Joy.

In fact the Government has unveiled the draft of a brand new direct tax law, which will replace the four-decade Income-Tax Act

The new code will completely overhaul and simplify the existing tax proposals for not only individual tax payers, but also corporate houses and foreign residents.

The new Tax draft has given Common man more than what he had expected “ There is a drastic reduction (at least, it looks like that prima facie) on the amount of taxes most of the employed people will pay going forward. Its not only individuals, its also India Inc. who should be extremely happy, the tax code bill released has not left them out – lot of goodies for them as well.

Now there is a caveat, this draft Tax code will be discussed in parliament in the winter session and if it gets the green signal will be implemented for assessment year 2011. So we have atleast couple of years to live with current Tax structure.

Here are some of the simplified Highlights of the the Draft Tax Code bill (I have highlighted the ones that are important):

  1. Lowers the incidence of tax on corporate and individual incomes
  2. Reintroduces wealth tax and capital gains tax, albeit at lower levels
  3. Scope of income tax expanded to include value of perks, gifts, profit in lieu of salary and capital gains but excludes farm income
  4. Removal of most exemptions
  5. All long-term savings to come under EET
  6. Tax exemption to PPF and other pension schemes on withdrawals accumulated up to March 31, 2011.
  7. The code proposes to abolish STT.
  8. Capital gains on shares and securities to be taxed as income.
  9. Distinction between long-term and short-term capital assets to go.
  10. Wealth tax cap to be hiked to Rs 500mn.
  11. Wealth to be taxed on net basis; Amount in excess of Rs500mn to be taxed at 0.25%
  12. Moves the base year for calculation of capital gains tax to April 2000
  13. Hike in tax deduction limit on savings to Rupees 3 lakhs
  14. Higher income tax slabs, lowering net payable taxes.
    • New tax slab
      Up to Rs1.6 lakh: No tax
      10% tax for income between Rs160,000 and Rs10,00,000
      20% tax for income between Rs10,00,000 and Rs25,00,000
      30% tax for income over Rs25,00,000
  15. Proposes highest tax rate of 30% on income of over Rs 25 lakh
  16. Tax breaks on housing to be removed
  17. Dividend will continue to be tax-free in the hands of investors
  18. Effective corporate tax rate at 25% with no surcharge or cess
  19. MAT to be levied on gross assets as against book profits now
  20. MAT to be 0.25% for banking and 2% for others
  21. MAT carry forward to be disallowed
  22. Business losses to be carried forward indefinitely
  23. No tax deduction on interest payable on any government security
  24. Wealth tax liability to be discharged by payment of prepaid taxes
  25. Income from certain transfers not to be treated as capital gains
  26. Rationalization of taxes for all non-profit organizations
  27. Annual disclosure of profits of non-life insurance businesses
  28. Govt may enter overseas agreements for double taxation avoidance
  29. No tax deduction on interest payable to banking firms and insurers

The most important is point no. 14, essentially what it proposes is

Salaried employee will be exempted of income up to Rs 1,60,000 a year from tax. Income up to Rs 10 lakh will be taxed at 10%, 10-25 lakh at 20% and beyond Rs 25 lakh at 30%. Currently, there is no tax till Rs 1,60,000 of income in a year. However, there is a 10% tax on income between Rs 1,60,000 and Rs 3 lakh, 20% between Rs 3 lakh and Rs 5 lakh, and 30% beyond Rs 5 lakh.

Here is the complete 256 page Draft Tax Code Bill. (If you are unable to see it, click on the title of this post)

Indian Direct Tax Bill

 

"Direct Tax Code Bill: Highlights & Full Report", 5 out of 5 based on 1 ratings.
  1. […] fact, there is difference of opinion among various analysts. Some say that the new DTC Bill is nothing but old wine in a new bottle, while other says that the government might try to recoup […]

  2. Gaganjot Singh says

    According to me that is most amazing step taken by our govt. and finally it is also for the common man.Every suggestion has it negetive as well as positve impact.so i want to play some facts of the same.

    Firstly,the meaning of social security and superannuation benefits at the end of one employee will be meaningless
    secondly, the superannuation benefits are largely one’s part with the liquidity during his or her lifetime and taxation by bullet will be an inhuman treatment for the salaried class.

    They have increased the tax slabs giving more cushion, on the other hand, the tax breaks on housing loans have been taken off.From what i have seen, housing loan tax break is one of t most frequently used tax saving instrument employed in the salary range of 5-10 lakh.

    When all the incomes are charged at a single flat rate of 10 per cent, then ultimately, the revenue from Income Tax shall definitely be manifold. Then there are chances of less Tax evasion, less burden of filing returns

  3. amit says

    many such problems i came to know from the website of outlook, the link attached here. looked somewhat useful to me
    http://moneyblogs.outlookindia.com/posts.aspx

  4. Bobby says

    Well, Income Tax may be considered to be charged at a single flat rate of 10 per cent on total Gross Income as TDS just like a Service Tax only, the minimum.

    However, for middle class/poor people, this 10 per cent Income Tax on total gross income may be borne by Employer and Employee in the following ratio:

    Gross Income Employer : Employee

    upto 50,000 Borne by Employer-Full
    50,000 to 1 lac 3 : 1
    lac to 1.5 lacs 2 : 2
    1.5 lacs to 2 lacs 1 : 3
    More than 2 lacs Bonre by Employee-Full

    There may be lot of retaliation/dissentment from the lower income groups for paying single 10% Income Tax on Gross Total Income. For them, Government may consider reduced/lower single slab Income Tax with 2 per cent, 4 per cent, 6 per cent and 8 per cent on Total Gross Income upto Rs.50,000, Rs.1,00,000, Rs.1,50,000, Rs.2,00,000 respectively.

    Incomes from (i) Interest (ii) Dividends (iii) Short / Long Capital Gain (iv) House Property may be considered to be charged at a single flat rate of 10 per cent as TDS just like a Service Tax. However, people below the poverty line may be given exemption of this 10 per cent Tax on Interest.

    Wealth Tax may be considered to be abolished.

    STT may be considered to be allowed to be continued and may not be considered to abolish the same.

    When all the incomes are charged at a single flat rate of 10 per cent, then ultimately, the revenue from Income Tax shall definitely be manifold. Then there are chances of less Tax evasion, less burden of filing returns.

    All Tax Saving Investment Schemes may be considered to be abolished.

    People shall have the option either to invest the savings or purchase some more things out of the savings.

    In both the cases, the Government will earn revenue either in the form of Tax on interests/Dividends or Tax on Excise/Sales Tax.

    You are requested to consider on the above points for a single flat rate of 10 per cent Tax on Total Gross Income.

    with regards
    Bobby

  5. Nandkishor Sheth says

    Direct tax code my suggestions

    1. Each & every assessee who can liable to file their return under any income head should file their physical CASH & STOCK within one month every by-quarter compulsory. it’s not necessary to compare with book value. but avoid fraud. its apply U/S National infermation act.

    2. All fix asset are revalueate @ cost inflation index i.e. current market value in Balanceshit.

    3. All current asset & investment are also treated current value i.e. accumulated interest etc.

    Nandkishor Sheth
    09824041427 (ANAND. GUJARAT)

  6. gautam biswas says

     this harsh treatment for salaried class will send the messages that the present government is anti salaried class because:
     the meaning of social security and superannuation benefits at the end of one employee will be meaningless
     secondly, the superannuation benefits are largely one’s part with the liquidity during his or her lifetime and taxation by bullet will be an inhuman treatment for the salaried class.
     Thirdly, does it mean that there would be no working class in the country as they are the prime enemy of the country as perceived by the political masters in the finance ministry?
     Fourthly, in a country like India the salary earners fall on the category of lower middle class and this section do not enjoy the income unlike developed country like US, UK or any western European country.
     Fifthly, there is no control over price rise, there is no effective public distribution system, there is no booming employment generation, and the country already grappled with recession apart from higher cost of education, construction, sanitation, medication and so on and further harshness would erode the sentiment of the salaried class adversely and the political masters must review it.
     Pay commission, or wage revision should have been intertwined with this taxation laws or programme and government should not all of a sudden chalk out strategy to kill salaried class
     Finally, all these adversarial of the proposed tax structure would adversely disincentivise as well as there will be complete negative fall down of inducement provided by the employer for the employees for higher productivity.

  7. Kiran says

    Finally, finally a simpler tax system. The real aam aadmi (the huge salaried middle class) finally benefits! A few caveats though –

    1) We have pumped in stimulus already. With this increased amount of cash in individuals’ hands, inflation might take off (it’s an economic problem, not a personal problem :)
    2) With the budget deficit as such steep levels, and with all the useless noise around ‘sticking to the nature of FRBM’ (which incidentally is not happening), I wonder where extra revenue is goin to come from.
    3) The current effective corporate tax rate is around 18% (and not 33% as advertised if you take into consideration all subsidies and exemptions and this varies from company-to-company). Wonder if the suggested 25% is 25% or significantly less. Any removal of subsidies and exemptions will raise a cry from corporates. Else, its a revenue problem.
    4) Housing from ‘people who want to invest’ might take a hit. Housing from ‘people who want to own and live in a home’ will not take a hit. Having said that, look out for a slew of prepayments and closing of loans from Banks (rate of interest of home loan > rate of interest on a FD) since the monthly instalment will now be directed to equity/PPF for tax savings.

    @Philip – As far I read the bill, there will be no distinction between long term and short term capital gains. I am no expert on taxes, but it implies that your gains on equity (PPF not sure) might attract tax irrespective of 1 year of holding them.
    And as far as double taxation goes, I think it is treaty or the tax code, whichever was formulated later will work in case of conflict. But then again, you might want to confirm this with a tax expert.

  8. Ankit says

    A Welcome move indeed!! It alteast gave some short term impetus to the Stock Markets today..

    But then it is a rather calcuated one at that.They have increased the tax slabs giving more cushion, on the other hand, the tax breaks on housing loans have been taken off.From what i have seen, housing loan tax break is one of t most frequently used tax saving instrument employed in the salary range of 5-10 lakh.

    But yes,over all it looks positive!!

  9. Philip says

    I have a few queries. Will the double taxation treaty that India has with more than 70 odd countries worldwide will be invalid or not? If yes, does the Finance Ministry have the right to come out with a law that will void a treaty between two countries?

    Also i read that previously any equity / mutual fund investment would not attract tax if sold after 365 days. Is this provision being taken off?

    Just happened to hear some experts speak on CNBC channel, but couldnt understand much their jargon :)

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