Direct Tax Code

INTRODUCTION
Income Tax Act (IT Act) came into legislation in the year 1961. This Act has been criticized for being economically inefficient, incompatible with the current requirements and inequitable to all tax payers. Direct Tax Code had been introduced to simply the income tax procedures for lay man. So, in August 2009, the Ministry of Finance came out with the draft of Direct Tax Code (DTC) bill with the purpose of replacing the existing IT Act and also invited the public for discussions and feedback on the draft proposal.

 So, in June 2010, the ministry again issued a new revised direct tax code bill, incorporating all the criticisms, and presented the draft to the Union Cabinet. As per the news reports, on 31st August 2010, the draft bill has been approved by the Cabinet as well as the Parliament and the new DTC will come into force from 1st April 2012. The new tax code is expected to widen the tax base, end unnecessary exemptions, moderate tax rates and add to the government's funds.

INCOME TAX SLAB

Income slab existing Rate of Income Tax Income slab proposed by new revised DTC

Up to Rs 160,000 Rs 160,001 to Rs 300,000

Rs 300,001 to Rs 500,000 Above Rs 500,001

nil 10%
20% 30%

Up to Rs 200,000 Rs 200,001 to Rs 500,000

Rs 500,001 to Rs 1,000,000 Above Rs 1,000,001

The basic tax exemption limit for an individual male and female has been raised and brought at par from Rs 1,60,000 and Rs 1,90,000 to Rs 2,00,000 per annum. Senior citizens, however, will now enjoy a tax exemption on income up to Rs 2,50,000 per annum instead of Rs 240,000 allowed now.

DTC SAVING LIMIT

Savings, in the form of provident funds whether public provident fund, government provident fund, or employees provident fund The new DTC savings limit allowed for deduction from the taxable income has been increased

Existing Limit
Rs 120,000 (including Rs20,000 for investment in infrastructure bonds)

Proposed Limit
Rs 150,000 which is decomposed as Rs 100000 for investment in provident funds, pension funds and other approved securities like gratuity; and Rs 50,000 for childs tuition fees, life insurance and health insurance premiums. If you invest in infrastructure bonds, deduction of an additional Rs 20,000 also can be claimed.

DTC IN CASE OF CAPITAL GAINS

Existing Limit Proposed Limit

Short term capital gains are now taxed at the rate of 15% for all (17% including surcharge and cess).

From 1-04-2012 onwards around 50% of the gain will be exempt and the rest will taxed at the income tax rates 15%

DTC IN CASE OF INCOME FROM HOUSE PROPERTY

Existing Limit Proposed Limit Under the present provisions of the According to the new code, it will be Income Tax Act, letting out an taxable under the head 'income from inseparable building along with plant house property' . and machinery is taxable under 'business income' or 'other sources' . In case of more than one house the annual value of self occupied house property is nil and tax should be paid on the other vacant house. There is a concept of notional rent. In case an assessee has more than one house for self-occupation , the benefit of nil gross rent will apply only for one self-occupied house at the option of the assessee. The computation of remaining houses will be made as if the properties are let out. No concept of notional rent.
Deductions for Rent and Maintenance in

Deductions for Rent and Maintenance in case of house property will be reduced to case of house property would be 30%. 20% in the proposed DTC.

DTC IN CASE OF OTHERS SECTORS

Dividend Distribution Tax to be decreased to 15% from 16.61% NRI were liable to pay tax on global income if he is in india for a period of more than 182 days as per IT Act which has been changed to 60 days as per DTC. Surcharge and Education Cess has been abolished. Corporate Tax rates has been revised from 33.33% to 30% for Domestic Companies and from 40% to 30% for Foreign Companies Earlier IT Act and Wealth tax Act (Covering Income Tax, TDS, DDT, FBT and Wealth taxes) are abolished and single code of Tax, DTC has been introduced. Concept of Assessment year and previous year is abolished. Only the Financial Year terminology exists. Only status of Non Resident and Resident of India exits. The other status of resident but not ordinarily resident goes away.