Direct Tax Code: Impacts & Tax Savings

28 Aug

Posted by Shyam as Market News

The UPA Govt has finally approved the draft for the so called Direct Tax Code(DTC) Bill. The Direct Tax Code(DTC) Bill will be tabled in the Parliament in the ongoing Monsoon session. So let us decode the Direct Tax Code Bill and understand its implications on the general tax payers and the corporate as well. No doubt, all of us will save some more money from the tax which we used to pay till now.

The proposed New Direct Tax Code is all set to replace the Income Tax Act which is in existence since 1961. If the Direct Tax Code bill gets passed in this session of parliament, it will be implemented in the next Fiscal year starting April 2011.

Highlights & Features of Direct Tax Code(DTC) Bill :-

Income tax slabs under the New Direct Tax Code(DTC) Bill :-

Honestly speaking the New Direct Tax Code (DTC) Bill did not stand upto the expectations made in the first draft of the Direct Tax Code Bill proposed earlier. Although common man will save money in form of Tax under the new Direct Tax Code, but its not going to be much.

Here are the proposed Income Tax Slabs under the Direct Tax Code (DTC) Bill:-

* Income in the range of Rs 2 Lakhs – Rs 5 Lakhs : 10%.
* Income in the range of Rs 5 Lakhs – Rs 10 Lakhs : 20%.
* Income greater than Rs 10 Lakhs : 30%.

So the limit of tax exemption for regular salaried people is just Rs 2 Lakhs up from Rs 1.6 Lakhs currently. The same for senior citizens and women’s is at Rs 2.5 Lakhs. The housing loan exemption of 1.5 lakhs will also be there for individual tax payers.

The proposed corporate tax for domestic and foreign companies will be 30%. There will no more be any surcharge or cess on the companies which will bring down the corporate taxes to 30% from 34% previously. The earlier draft proposed to bring the corporate taxes down to 25%.

The other goodies being proposed in the new Direct Tax Code Bill is the investments made in PF, PPF, GPF, RPF would be treated as EEE (Exempt-Exempt- Exempt) which means the investor will not have to pay any taxes at the time of maturity. The initial draft which was proposed earlier treated these investments as EET which means that the income at maturity would have been taxed. The new Direct Tax Code Bill also proposes to keep PFRDA scheme under EEE facility where the gains will no more be taxed.

People investing in ULIPs and ELSS should be cautious as the proposed New Direct Tax Code Bill will not consider these investments for tax exemptions.

Some of the major concerns apart from the corporate taxes is the Minimum Alternate Tax which has been proposed at 20% of the book profits against 18% currently being charged from corporates. The other shock under the Direct Tax Code Bill is for the IT companies. The new Bill plans to end the Tax holidays being enjoyed by the IT companies in India. Reacting to this news the IT stocks made a free fall in the stock markets. So lets wait watch for the final version of the New Direct Tax Code.