India wants to simplify its direct tax laws, mainly its Income Tax Act, which is now nearly 50 years old. The government wants a modern tax code in step with the needs of an fast-growing economy.
Deduction for individuals on account of tax sops will be:
- Up to1 lakh for approved long-term saving i.e. provident fund (PF), superannuation fund, gratuity fund, pension fund
- Up to50,000 for expenditure on tution fees of children, pure life insurance premia and health insurance payment
- Up to1,50,000 for interest paid on house loans
- Exemption limit proposed at2 lakh per year, up from6 Lakh.
- Separate deduction for interest on education loan and for payment of expenses of disabled or disabled dependant
- The exemption limit for senior citizens, is sought to be raised marginally to2.5 lakh from2.40 lakh now
- An individually tax payer earning more than10 lakh would save up to41,040 annually.
- Tax burden would reduce by21,450 for those earning annual income between5 lakh and10 lakh, while those making2 lakh to5 lakh could be richer by7,660.
- Individuals over 65 years could see tax burden lessen by4,420 if they earn5 lakh a year, while those earning10 lakh will save18,300 tax.
Know about DTC
The new Direct Taxes Code(DTC) Bill aims to replace profit-linked tax incentives with investment-linked incentives. The new tax code is expected to widen the tax base, end unnecessary exemptions, moderate tax rates and add to the government's coffers. The federal budget has estimated about $92 billion (Rs 9,200 crore) in direct tax receipts for the year that ends in March 2011.
What is the purpose
- Integrate all direct tax laws with a single legislation
- Simplify the language through use of direct and active speech
- Provide stability in direct tax rates
- Strengthen taxation provisions for international deals
- Minimise exemptions to result in a higher tax-GDP ratio
Personal income tax
- Corporate tax to remain at 30 per cent but surcharge and cess - which currently amount to an extra 3.2 per cent - have been dropped.
- The Minimum Alternate Tx (MAT) rate has been increased from 18 to 20 per cent in the new code.
- Government proposes to retain a zero capital gains tax for those who hold on to shares for more than a year
- MAT will be levied on book profits and all companies with MAT credit will be allowed to carry it forward for 15 years
- Dividend Distribution Tax - tax on distributed profits of a domestic co- will be 15 per cent
- The tax on the income distributed by an MF to its unit holders of equity funds will be 5 per cent.
The bill will be made effective from April 2012. From this date TDS at the rates mentioned in the Schedules will become operative.
From March 2013, the first return of income tax under the new provisions will be filed.