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