The government on Wednesday unveiled the draft of a brand new direct tax law that would represent a radical review of the Income-Tax Act, 1961.
The tax code makes radical changes in all areas of taxation: it lowers the incidence of tax on corporate and individual incomes but reintroduces wealth tax on all assets and tax on long-term capital gains, albeit at lower levels.
It also proposes to bring a uniform pattern of taxation to bear on all long-term savings: EET, which is exempt at the stage of contribution, exempt during accumulation and taxed during withdrawal.
Check out how new tax code would impact individuals.
Tax liability and you:The direct tax code is a bit of a mixed bag for individuals, particularly the salaried class. Prima facie, the tax liability will reduce significantly as the draft code proposes to tax incomes up to Rs 10 lakh at 10%, that between Rs 10 lakh and Rs 25 lakh at 20% and sum in excess of that at 30%.
Thus, an individual with taxable gross income of Rs 10 lakh will pay tax of Rs 84,000 as opposed to about Rs 2.11 lakh he pays this fiscal year.
Check out the impact of proposed code on tax liability..
If your annual Income is Rs 4,00,000:
If your annual Income is Rs 8,00,000:
If your annual Income is Rs 15,00,000:
The government, in its new Direct Tax Code, has sought to introduce provisions to prevent the misuse of double-taxation avoidance treaty that India has with a few countries.
Measure and impact of proposed tax slabs:
While the code will empower the government to enter into an agreement with any foreign country for relief on double taxation, it will also extend to enabling the purpose of exchanging information from the partnering country to prevent evasion or avoidance of income tax.
Individuals:Code for income from business to be rationalised, every business will be a separate source and taxed accordingly.
Wealth to include all assets including shares, amount in excess of Rs 50 crore to be taxed at 0.25%.
New simpler scheme for computing income from house property.
Any sum from life insurance policy, including bonus, exempt from income tax.
EET regime to apply from 1 April 2011. Withdrawal of accumulation before that not to be taxed.
Shift from one eligible saving scheme to another not to be treated as withdrawal.
Capital gains:The base year for calculation of capital gains shifted from 1.4.1981 to 1.4.2000. As a result, all capital gains before April 2000 will be exempt.
Capital loss will not be allowed to be set off against any other income.
Inflation indexation of cost of acquisition/improvement to continue.
Transfer of asset as gift will not attract capital gains provisions.
Gains not taxed (rollover benefit) if invested in approved capital gains savings scheme, first residential house, farm land.
Cost of acquisition to be nil if it cannot be determined or ascertained for any reason.
All withdrawals from any capital gains savings scheme will be included in residual income.
The main purpose:The new code will completely overhaul and simplify the existing tax proposals for not only individual tax payers, but also corporate houses and foreign residents.
How will it help:The idea is to keep the provisions simple so that even an average taxpayer can understand the language, than having to go to chartered accountants and income tax practitioners. It will also introduce the concept of tax calculators.
What can the public do:The finance ministry has uploaded on its website - www.finmin.nic.in - the draft direct tax code, a discussion paper, a comment on the code and what rating people would like to give to it.
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