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Direct
Tax Code bill 2011
The
Union Cabinet on August 27, 2010 approved the draft of the Direct
Tax Code (DTC) Bill diffrent then promised in the original
proposal unveiled in August last year by finance minister Pranab Mukherjee.
The version approved by the Cabinet exempts incomes up to Rs
2 lakh per annum (against the current Rs 1.6 lakh) from tax,
proposes to tax incomes between Rs 2 lakh and Rs 5 lakh at 10%,
between Rs 5 lakh and Rs 10 lakh at 20% and beyond Rs 10 lakh at
30%. For women and senior citizens, the exemption limit
would be Rs 2.5 lakh per annum. At present, women have to pay tax
on incomes of Rs 1.9 lakh per annum or more and senior citizens on
incomes of Rs 2.4 lakh or more.
The maximum that anyone can gain from this proposal in
terms of savings on the tax burden compared to the present levels
is Rs 26,000 per annum. Even that is only possible if you are a
woman and have an annual income of Rs 10 lakh or more. That's a
far cry from the Rs 2.2 lakh that the same person would have saved
if the original DTC proposal had been accepted by the Cabinet.
For corporates, too, the DTC appears to have flattered only
to deceive. The code passed by the Cabinet has maintained the rate
of tax on corporate incomes at the current 30%, against the 25%
proposed originally, and the minimum alternate tax (MAT) for
corporates at 20% of book profits.
Amendments
proposed
The revised draft of direct tax code has proposed some
major changes for the taxpayers. The amendments proposed in the revised draft are
Under the new direct tax code, exemption for House rent allowance,
Leave Travel Concession, medical allowance has been retained.
However under the new tax code, LTC will be included as a part of
your income. LTC was missing from the list of exemptions.
* The tax slabs will be changed with 10 per cent tax on income of
Rs 2,00,000-5,00,000, 20 per cent tax on income of Rs 5,00,000-
10,00,000 and 30 per cent thereafter. Marginal exemption of
income tax for senior citizens and women has also been proposed.
* Under the DTC Equity Linked Savings Scheme, repayment of
principal amount of the housing loan, term deposits with banks do
not find any mention.
* If you have made investments in equity market for less than a
year and you want to book profits on the capital gains realised,
the tax will now be linked to your individual tax slab Thus the
capital gain will be added to your income to calculate the final
tax. It means the low-income tax payers who earlier were paying a
flat 15 per cent on short term capital gains will now pay less tax
because of this amendment. The high-income taxpayer would continue
to pay almost the same 15 per cent tax on capital gains. Also, if
you have a long term investment horizon, Capital gains will be
fully exempted from being taxed. However, you will now have to pay
tax @ 5 per cent on equity fund dividends.
* In the present tax code, if you have invested in long term
savings products like PF, gratuity fund, pension fund etc, then
you can claim a deduction of Rs 1,00,000 from being taxed. Now
with the introduction of new tax code, you can claim a deduction
of an additional Rs 50,000 for tuition fees of children, pure life
insurance premium and health insurance premium. Also, if you
invest in infrastructure bonds, deduction of an additional Rs 20,000 also can be claimed.
* If you have taken a housing loan, after DTC gets implemented,
you can still claim deductions of up to Rs 1,50,000 per annum for
the interest payments by you every year.
* Under DTC, tax department will have more powers to impose a
penalty. Currently, a penalty is levied for concealing the
particulars of your income and if you are able to convince the
Government that you didn't intend to evade tax; you are let off
without any penalty. But now under the new tax code, you will be
levied penalty even for under- reporting. The penalty for tax
evasion will now be however decreased to a maximum of 200 per cent
of the tax due from the current 300 per cent of the tax due. Also,
faulty books and wilful attempt to evade taxes will be levied a
penalty of maximum Rs 3,00,000 and Rs 5,00,000 respectively. |
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