On 26th August 2010, the Government of India has proposed the new Direct Tax Code Bill for 2011 which would replace the old Indian Income Tax Act of 1961. Pranab Mukherjee, the Finance Minister of India has released a set of New Direct Tax Codes to increase the basic exemption limit for individual tax payers from Rs 1.6 lakh to Rs 2 lakh. This New Direct Tax Code (DTC) 2011 Bill or Direct Tax Code India 2011 would be effective from Financial Year 2011-12 starting from first day of April 2011.
As the tax slabs have been simplified further, the new Direct Tax Code (DTC) brings relief to the taxpayers. The taxpayers can now get more benefits as they have to pay fewer taxes in every slab of income. The income tax slabs are increased but several deductions (e.g. deduction on housing loan) and tax-breaks are carried away.
Key Features of New Direct Tax Code (DTC) 2011:
Direct Tax Code slabs 2011-2012, Men
|Income: upto 1.6 lacs||NO TAX|
|Income : 1.6 lacs to 10 lacs||10 %|
|Income : 10 lacs to 25 lacs||20 %|
|Income : above 25 lacs||30 %|
Direct Tax Code slabs 2011-2012, Women
– Not yet announced.
Direct Tax Code slabs 2011-2012, Senior Citizen
– Not yet announced.
As per the proposal, a tax payer will pay at the rate of 10 per cent for income above Rs 2.5 lakh and up to Rs 5 lakh, at 20 per cent on income between Rs 5 lakh to Rs 10 lakh and at 30 per cent for income beyond Rs 10 lakh.
The Finance Minister gave explanation to the parliament on the proposed Direct Tax Code that “the aim is to remove 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. Initial analysis shows that most of these objectives are achievable by tweaking of some provisions. All that is fine, let us see what the provisions of the proposed tax structure are, and how it would affect the income tax payers across the spectrum.”
By drastically lowering the tax burden while also doing away with most exemptions, the original draft had promised a whole new paradigm in direct taxation. A revised draft that released in June this year carried out back some of the exemptions like the one available for interest on housing loans that the first draft had proposed to get rid of.
Education cess and surcharge on total income tax:
It is not obvious that education cess and surcharge will be applicable on income tax collected under direct tax code. In addition to the income tax calculated, a 3% of Education cess is charged on the total Income tax paid (not on the total taxable income) according to the current Indian income tax act. A 10% surcharge on the total income tax (not on the total taxable income) is also charged if the taxable income exceeds Rs. 10 lacs.
Ernst & Young Tax Market Leader, Sudhir Kapadia said, “DTC will help in streamlining various tax exemptions, deductions and thereby bring in moderate tax rates. DTC would address most of the issues raised by corporate India, like, not imposing tax on gross assets, clarifying EEE, introducing graded deduction for capital gains among others”.