Finance Minister Pranab Mukherjee on Monday introduced the Direct Taxes Code ( DTC) Bill in the Lok Sabha, which fell far short of the sweeping reforms promised in the draft version of the Bill.
The new Bill, which is now scheduled to come into effect from April 1, 2012, proposes three wider income tax slabs - 10 per cent tax on incomes in the range of `2- 5 lakh, 20 per cent on those earning between `5- 10 lakh and 30 per cent tax on incomes above `10 lakh. It also raises the exemption limit from the present level of ` 1.6 lakh to ` 2 lakh when the DTC comes into effect on April 1, 2012.
For senior citizens, tax exemption has been raised slightly to `2.5 lakh from `2.40 lakh.
The draft Bill's suggestions were 10 per cent for incomes of between `1.6- 10 lakh, 20 per cent for incomes in the range of `10- 25 lakh and 30 per cent for income above `30 lakh. This is because the draft had proposed to do away with most of the exemptions on provident funds and life insurance at the time of withdrawal and medical insurance as well.
The new taxes code does not make any special provisions for women as is the case at present and is gender neutral in that sense.
Currently, individuals in the `1.6- 5 lakh income bracket pay 10 per cent tax; those earning in the `5- 8 lakh range cough up 20 per cent tax while the highest bracket of above `8 lakh attracts 30 per cent tax.
The tax incentives proposed for individuals in the new code include a deduction of up to `1 lakh for approved long- term savings such as provident funds, superannuation funds, gratuity and pension funds.
Expenditure of up to `50,000 on tuition fees of children, pure life insurance premia and health insurance payments will be exempt from tax as well.
Deduction from income tax will also be allowed for interest paid on loans for construction or acquisition of self- occupied house property as is the case at present.
A separate deduction for interest on education loan and for payment of expenses of a disabled person or disabled dependent has also been provided for in the new tax code. The new tax will give some relief to corporate as well as it seeks to fix corporate tax at 30 per cent but does away with surcharge and cess, which are currently being levied.
Although the current rate of corporate tax is 30 per cent the additional surcharge and cess makes the effective rate go up to 33.2 per cent of the net profit.
However, the new bill proposes to increase the minimum alternate tax ( MAT) from 18 per cent to 20 per cent of book profit of a company. It seeks to levy dividend distribution tax at 15 per cent.
DTC is expected to boost investment flow into capital markets, as the government proposes to retain a zero longterm capital gains tax.
Revenue secretary Amit Mitra said investors selling shares after a year of holding will not have to pay any tax on the gains. As far as short- term capital gains tax are concerned, individual investors will now have to pay tax on 50 per cent of the gains earned.
Mitra said the DTC, after it has been approved by Parliament, will come into effect from April 1, 2012. Advance tax and tax deducted at source ( TDS) at the rates mentioned in the code will become operative from April 1, 2012 and the first return of income under its provisions will be filed after March 31, 2013.
The extra year will permit " taxpayers, practitioners and tax administrators to become fully familiar with its provisions and also permit the introduction of new formats and changes in systems software", he added.