The New Draft Direct Taxes Code was released for public discussion on August 12, as promised by the finance minister in his Budget Day speech. The main object is to simplify the country’s complex direct tax laws and to make it simpler and easier for tax payers to comply with. The focus of the code is to improve the efficiency of the Indian tax system, by introducing moderate levels of taxation and expanding the tax base. The code also considers all other direct taxes. If enacted in the current state, the code will come into effect from 1st April, 2011.
There are several clauses which give reason to the taxpayer to smile. On the other hand, there are some proposed reductions/removals in the existing deductions as well, which are bound to cause disappointment.
Though the tax rates largely remain same, the income slabs have been significantly increased. The highest tax rate of 30% will now be faced only if taxable income in a year exceeds Rs 25 lakh. Further, surcharge and cess, which added another 2-4% to the tax rates, are now proposed to be abolished.
The proposed changes would immediately increase the levels of net income for all categories of tax payers. This move is welcome as it would put more cash into the hands of the individuals to spend thereby increasing consumption and giving a boost to the economy.
Another important proposal is to increase the maximum limit for tax deductions on account of savings in prescribed instruments (under Section 80C) from Rs 1 lakh to Rs 3 lakh. The most interesting new item is payment of tuition fees for children education (for 2 children).
The tax deduction which is currently available to salaried persons on account of House Rent Allowance (HRA) provided the employee actually pays rent be removed is now proposed and it will be a point of considerable disappointment to many salaried employees.
It has so far been an important source of tax savings to persons living in costly cities who do not own homes. With the deductions on home loans also going away, employed people will find housing expenditure going up.
The current deduction rate of 30% in the case of rental incomes from house property of gross rent for repairs etc is proposed to be reduced to 20%. In addition, the deduction granted of interest on housing loan in case of self occupied house property is sought to be removed (currently, interest cost not exceeding Rs 150,000 is allowed as a deduction). Hence there are no benefits available for loans taken for self occupied house property.
The code also provides that any amount received under the scheme of voluntary retirement, gratuity received on retirement or death, commuted pension would be exempt if the same is transferred into a fund designated as the Retirement Benefits account and would be taxable only in the year in which it is withdrawn.
Some significant changes are proposed in the area of capital gains tax. Security transaction tax (STT) is proposed to be abolished and all capital gains would now be taxable as any other regular income. Therefore, persons indulging in the stock market may need to shell out more taxes.
The due date of filing of tax returns has been advanced to June 30 from July 31 for individuals so there will be more work to be done in April and May as after then.
Hence, the proposed code does provide the tax payer substantial relief by increasing the slabs, but at the same time, it also takes away the exemptions and deductions which were available to the common man and which people have become so used too.
As this proposal would have far reaching impact on almost the entire working population of the country, it is likely to be a matter of considerable debate and discussion. It remains to be seen how it finally takes shape.
Ahmedabad Time
0 comments:
Post a Comment