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There is going to be some really big changes in Taxation laws if “Direct Tax Code” comes in place of Income Tax Act 1961. It is expected to pass this bill in monsoon session of 2010 and Direct Tax Code is expected to enforce from 1st April, 2011. It eliminates the old Income Tax Laws & new tax law comes in force. But some problem, It is not enforced from 1st April, 2011. It may be enforced from 1st April, 2012.
Finance Minister Mr. Pranab Mukherjee explains that the aim is to eliminate distortions in the tax structure, introduce moderate levels of taxation, expand the tax base, improve tax compliance, and simplify the language and lower tax litigations.
New features are:-
Single Code for direct taxes
Use of simple language
Reducing the scope for litigation
Flexibility
Ensure that the law can be reflected in a Form
Consolidation of provisions
Elimination of regulatory functions
Providing stability

DTC Highlights, Summary, Changes & Tax Rates :-
  • Old Direct Tax Act (covering Income Tax, TDS, FBT & Wealth Tax) are abolished and single code of tax come in place, named Direct Tax Code
  • Concept of Assessment Year and Previous Year is abolished. Only “Financial Year” taken into account.
  • In case of Residential Status, “Resident but not Ordinary Resident” status is abolished. Only “Non Resident” & “Resident of India” exits.
  • Old Act: - Person means who pay tax and/or who is liable to pay tax. New Act: - Person means who fill tax return and/or whom the amount is refundable.
  • No changes in the system of Advance Tax, Self Assessment Tax and TDS.
  • Government assesses is covered in Direct Tax Code. Even though they are not liable for Income Tax / Wealth Tax
TAX RATES
IncomeTax Slub
to INR 200,000 (for senior citizens 250,000)NIL
Between INR 200,000 to 500,00010%
Between INR 500,000 to 1,000,00020%
Between INR 500,000 to 1,000,00020%

  1. Women could cease to enjoy income-tax exemptions over and above men get.
  2. Men and women are treated same now
  3. Only senior citizens will get extra relief with tax exemption up to income of Rs.2.5 lakhs.
  4. Corporate tax rate 30% (no surcharge or cess)
Change in Deductions from Salaries:
  • Tax exemption on Education loan is continuing.
  • Tax exemption on LTA (leave travel allowance) is abolished.
  • Medical reimbursement: Max limit for medical reimbursements has been increased to 50,000 per year from current 15,000 limits.
  • DTC removes most of the categories of exempted income. Unit Linked Insurance Plans (ULIPs), Equity Mutual Funds (ELSS), Term deposits, NSC (National Savings certificates), Long Term Infrastructures Bonds, House Loan principal repayment, stamp duty and registration fees on purchase of house property will lose tax benefits.
  • Deductions are allowed for Voluntary retirement, Gratuity on retirement and pension received.
  • Also deduction is allowed for PF as tax incentives.
  • Allowed are only, PT, Transport Allowance (limit prescribed) and special allowances given exclusively to meet duties (to the extent actually incurred).
  • Tax saving based investment limit remains 100,000 but another 50,000 has been added just for pure life insurance (Sum insured is at least 20 times the premium paid) , health insurance, mediclaim policies and tuition fees of children. But the one lakh investment can now only be done in provident fund, superannuation fund, gratuity fund and new pension fund.
  • Available: - Investments through PFRDA approved agencies (Max of 3 Lakhs), Payment of tuition fees, Medical treatment, Health insurance, Donations, Interest on loan taken for higher education, Maintenance of a disabled dependant, Interest income on Govt bonds
  • No tax deduction on interest payable to banking firms and insurers
House Property:
  • Deductions for Rent and Maintenance would be reduced from 30% to 20% of the Gross Rent. Also all interest paid on house loan for a rented house is deductible from rent.
  • Before DTC, if you own more than one property, there was provision for taxing notional rent even if the second house was not put to rent. But, under the Direct Tax Code 2010, such a concept has been abolished.
  • No deduction for Housing loan repayment of Self-Occupying property. This includes interest as well as part of principal.
  • Only Let out properties are considered and the Gross rent and specified deductions are taken with simple calculations.
  • Exemption will remain same as 1.5 lakhs per year for interest on housing loan for self-occupied property.
Surcharge and education cess are abolished.

Wealth Tax
  • the proposed Tax Code has sought to make major changes in wealth tax calculations and rates.
  • The threshold limit for wealth tax will be raised to Rs 50 core from the present Rs 30 lakh and the tax rate was reduced from 1 per cent to 0.25 per cent.

Residential Status:-
  • In case of Residential Status, “Resident but not Ordinary Resident” status is abolished. Only “Non Resident” & “Resident of India” exits.
  • Assess liable to pay tax on foreign income if he in India just 60 days. In the old act the time is 180 days.
Capital Gain:-
  • Only half of Short-term capital gains will be taxed. E.g. if you gains 50,000, add 25,000 to your taxable income.
  • For sale within one year, gain is to be added to taxable salary.
  • For long term gain (after one year of purchase), instead of flat rate of 20% of gain after indexation benefit, new concept has been introduced. Now gain after indexation will be added to taxable income and taxed at per the tax slab.
  • Base date for cost of acquisition has been changed to 1st April, 2000 instead of earlier 1st April, 1981.
  • The long-term capital gains exemption on listed equities stays along with STT
On the MAT (minimum alternative tax)
  • The Tax Code has also proposed changes in the calculation of minimum alternate tax (MAT) payable by corporate. MAT will now be levied at 2 per cent of the value of gross assets of a firm in case of all companies except for banks which will pay tax at 0.25 per cent. This shift in MAT from book profits to gross assets is aimed at encouraging optimal utilization and increased efficiency of assets.
  • MAT to be levied on gross assets as against book profits now
  • MAT to be 0.25% for banking and 2% for others
  • MAT carry forward to be disallowed

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Pijush Roy, Founder & Author of "Share Your Knowledge", is a young freelance blogger, a reader, a painter, .....read more


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