Wednesday, September 1, 2010

New Direct Tax Code- Indian Govt Financial Reforms...Quick View

It took close to 40 years to bring in changes to the much cherish Income Tax Act of 1961 and Wealth Tax Act of 1957 to pace with the growing economy.   Of course new course content to Economics Students and Accountants to handle these changes :-)

The New Direct Tax Code will implemented from April 1, 2012.  But it is a good news and this waiting period will help Auditors and Accountants to understand the new regulations that give solace to an ordinary tax payer in India.

Highlights of Direct Tax Code Bill

  • First Amended law after Independence that scrapped exemptions to women based on gender... as a woman,  I applaud this decision.  
  • The Income Tax Exemption extended from Rs.160000 to Rs. 200000 with no additional exemption to women
  • Tax incentives on Leave Travel Allowances (LTA) is scrapped.
  • Housing loan interest exemption up to Rs.1.5 lakhs retained....cheering Real Estate markets
  • Income between 2- 5 lakhs will pay 10% tax
  • Income between 5- 10 lakhs will pay 20%
  • Income above 10 lakhs would attract 30%  (additional savings of around Rs 40000 for income over 10 lakhs as against the current slab)
  • Marginal increase to the exemption on Senior Citizens from 2.4 to 2.5 lakhs per annum
  • Corporate Tax to be flat 30% (against current 33.34 %)
  • Wealth Tax exemption limit increased from Rs.15 Lakhs to Rs.1 Crore as against the proposed Rs.50 crores.
  • Wealth tax imposed as 1% where as Non-profitable organizations are exempt from wealth taxes
  • Exemption on Pension, Provident Funds and gratuity to be Rs.1 lakh, where as Rs 50000 pure exemption is now available on tuition fees and insurance products including health insurances
  • Existing provision of zero tax on long term capital gains to continue...
  • Revisions made to short term capital gains
    • Income between 2-5 lakhs, would pay 5% on short term capital gains (as against current 15%+2%Cess)
    • Income between 5-10 lakhs, would pay 10% on short term capital gains
    • Income above 10 lakhs, people would pay 15% on short term capital gains
  • Dividends on Unit-linked Mutual funds and ULIPS attract 5% tax on these investments
  • MAT increased from 18% to 20% on the book profit to the companies
Insinuations of this proposed Bill on Direct Tax Code

  • Housing market will breathe again with exemption on the interest on housing loans continued.
  • Middle class marginal savings would be increased as investment in approved funds and insurance is increased from 1.2 to 1.5 lakhs
  • Regulations on wealth tax will see more of compliance as many properties would fall within the limit set by the government.
  • Boost investment flow into long term capital gains for country's infrastructural needs
  • Special Economic Zones will enjoy special tax benefits to boost economy empowerment
  • Profit linked deductions to SEZ units will have an adverse impact, but have to be rationalized
  • Increase in MAT will balance the benefits received in lowering the corporate tax
  • Enhance Foreign companies operations in India,  promote foreign institutional investors and global mergers and acquisitions
  • Right to equality to women, have first time achieved in reality. Once we earn, we pay the taxes, no matter who we are by gender.
The Best Part of this Direct Tax Code bill is that we don't need to wait for the Finance Budgets coming in every year from the Finance Minister's tables and await changes as these would no longer be part of the Country's Annual Finance Bill.  

This firmness and reformed tax structure will enable tax payers and accountants to follow these guidelines moving forward.The power of the Tax Authorities under the General Anti-Avoidance Act remains the same.

Yet, there is a long way to go as far as regularizing the income tax payers in India, bringing in the rich, rater rich to pay more and help the economic ambitions of the country to fulfill.    90% of our Direct Tax payers are in the middle income group and fall under salaried class and only constitute around 30% of tax revenue to the government, where as the 5% of the high income cream layer of the country constitute 70% of the Tax revenues to the government.   Now it is the time to put a reality check on this 5%....are the richer-rich of the country only constituting 5% of tax payers..... are we not accounting our politicians, film fraternity and business world,...... may be time of Tax Payer Reforms and Regulations :-)  Dr Singh, are you listening....?

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