Union Cabinet on Thursday cleared the new Direct Tax Code Bill that proposes to raise the basic exemption limit for individual tax payers from Rs 1.6 lakh to Rs 2 lakh. So there will be no tax on incomes below Rs 2 lakh. The exemption for senior citizens has been raised to Rs 2.5 lakh, up from 2.25 lakh at present. The tax code will now be sent to a standing committee for clearance and is most likely to be presented in Parliament on Monday
New Income tax slab
0 -2 lk – Nil
2 -5 – 10%
5- 10 – 20%
>10 – 30%
The whole objective of the Direct Tax Code is to provide predictability because now the tax rates will not be part of the Finance Act. It will be a part of the schedule which will be approve by Parliament along with the Direct Tax Code. Direct Tax Code incorporates all three direct tax act; IT Act of 1961, Wealth Tax of 1957, Dividend Distribution Tax of 1997. All these are combined in Direct Tax Code," said Mukherjee.
Most probably on Monday it (Direct Tax Code) will be introduced in Parliament. It will be put on the website as soon as it's introduced in Parliament," said Revenue Secretary Sunil Mitra. The Bill also seeks to remove surcharge and cess on corporate tax, providing relief to business houses. According to the new direct tax code corporate tax rate will be 30 per cent including all taxes, down from the existing 33 per cent. For senior citizens and females, the tax slabs are likely to be relaxed further, they added. "The whole objective is that a plethora of exemptions will be limited. (Income) tax slabs will be three. Rate of taxes will be taken in the schedule so that they need not be changed every year," Mukherjee said. On the corporate tax, the Finance Minister said it is sought to be retained at the present level of 30 per cent, but there will not be any surcharge or cess on it. Income between Rs 2-5 lakh is likely to attract a rate of 10 per cent, 20 per cent for Rs 5 -10 lakh bracket and 30 per cent above Rs 10 lakh. At present, income between Rs 1.65 lakh and Rs 5 lakh attracts 10 per cent tax, while the rate is 20 per cent for the Rs 5-8 lakh bracket and 30 per cent for above Rs 8 lakh. The first draft of the bill had suggested 10 per cent tax on income between Rs 1.60 lakh and Rs 10 lakh, 20 per cent on income between Rs 10 and Rs 25 lakh and 30 per cent beyond that. However, Finance Ministry officials had later said those slabs were just illustrative. The Bill, approved by Cabinet on Thursday, also seeks to impose minimum alternate tax (MAT) at 20 per cent of the book profit, compared to 18 per cent at present. The first draft had proposed to impose MAT on assets, which drew strong criticism from the industry. The MAT on book profit has been maintained in the revised draft as well. It had also proposed to tax long-term savings like PF at the time of withdrawal. The revised draft exempted them. "Concerns were expressed for shifting from EEE (exempt, exempt, exempt) to EET (exempt, exempt, tax)," Mukherjee said. This would also address the issue of taxing surplus funds of charitable institutions, he said. The new Direct Tax Code will take effect from April 1, 2011.
A new Direct Tax Code has been released, the stated objective of which is to improve efficiency and equity of the system by eliminating distortions in the tax structure, introducing moderate levels of taxation and expanding the tax base. The three strategies adopted while drafting the code are:
i. Minimize exemptions.
ii. Remove ambiguity in law.
iii. Check erosion of tax.
This direct tax code will replace existing Income Tax Act, 1961 & Wealth Tax Act, 1957.
1. The Goal
1.1 Consolidate and amend all direct taxes – Income Tax, Dividend Distribution Tax, Wealth Tax.
1.2 Simplify language to ensure that the law can be reflected in the return form.
1.3 Reduce scope for litigation.
1.4 Flexibility in accommodating changes without need for frequent amendments.
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