New Direct Tax CodeA new Direct tax code has been introduced , which would replace the Income Tax Act of 1961 within the next 45 days.It will change the way we Indians have been paying tax. And maybe prompt those who have been shirking away paying their taxes as now rates would be lower and it’s so simple.
It was like a mini Budget.The entire Income Tax Act 1961 has actually got replaced with a more progressive norm, more in lines with what the developed countries follow.
The Code is like a law. What is stipulated in the Code is what remains. So this means, the Budget would probably be more about indirect taxes and other budgetary allocations. Once this Direct Tax Code gets implemented, the Budget might then not have this anticipation in terms of changes in Income Tax.The new direct tax code would become a law only by 2011, which is 50 years since Income Tax Act came into being.
The second very important take away from this Code is that all direct tax codes would come under one umbrella.
Third facet is that it has been kept very simple and that is done to ensure better compliance and eliminate scope of litigations. The code also ensures that we will not have any confusion over assessment year and financial year and previous year. It will be about financial year, like how we have for our corporate results.
Negative Points Of New Code
According to the new proposals, all interest on savings will be taxed from 2011 onwards. And that is something which would not really go down too well with people. The markets might not be too happy with the idea of reintroducing long term capital gains on securities trading which means that there is really no incentive for along term investor to stay put.
The Code also suggested that perquisites given to employees should be included in salary income. This would inflate the taxable income of certain categories of salaried persons and this might not be such a welcome move.
Highlights of the Direct Tax Code:
1. No tax on annual income upto Rs.1.60 lakh
2. 10% tax for Rs 10 lakh income; 20% for Rs.25 lakhs and 30% for over Rs.25 lakhs
3. Corporate tax to come down from 30% to 25%
4. Wealth tax on wealth over Rs.50 crore
5. Increase deduction limit for savings upto Rs.3 lakhs
6. Interest on savings to be taxed
7. Security transaction tax (STT) to be abolished
8. To do away with long, short-term capital gains differentiation
9. Base year for calculation of capital gains tax moved to Apr '00
10. Allow indefinite carry forward of business losses
11. No tax deduction on interest payable on any Govt security
12. Rationalization of taxation of all non profit organizations
13. Annual disclosure of profits of non-life insurance business
14. Reintroduction of tax on long term capital gains on securities trading
15. Foreign companies to pay additional tax of 15% as branch profit tax