The government today kick-started radical tax reforms by unveiling a draft tax code under which an individual will effectively not have to pay any tax on an income of up to Rs 4.6 lakh a year against Rs 2.7 lakh at present.
The ceilings on tax-free income will be raised to Rs 4.9 lakh in the case of women and Rs 5.4 lakh in the case of senior citizens.
The code proposes zero tax on an income of up to Rs 1.6 lakh but also provides for a tax deduction of up to Rs 3 lakh on bank fixed deposits and specified investments in small savings schemes, insurance and other savings instruments.
Over and above the Rs 3 lakh ceiling, taxpayers can claim deductions for money spent on children’s education, health insurance premia up to Rs 20,000 annually in the case of senior citizens (Rs 15,000 for the rest), medical treatment of up to Rs 60,000 annually for senior citizens (Rs 40,000 for the rest), and expenses up to Rs 1 lakh for disabled dependants.
But there’s bad news as well: there will be no tax break for buying an apartment (which qualifies at present for a tax benefit of Rs 1.5 lakh a year on interest payments). Moreover, withdrawals from retirement funds will no longer be exempt from tax.
Salaried individuals may also feel the pinch since all perks will now be included in the definition of taxable salaries.
Companies will have to pay tax at the rate of 25 per cent instead of an effective rate of almost 35 per cent at present. However, companies that pay minimum alternate tax (MAT) — a tax levied since 1997 on zero-tax companies — could face a big blow since the levy will now be charged on 2 per cent of their gross assets. Earlier, it was charged on 15 per cent of book profits.
2 years to kick in
The changes have been proposed in a tax code that seeks to replace the 48-year-old Income-Tax Act. The code has been put in the public domain for discussion. It will come into effect in about two years after it is passed by Parliament with changes.
Finance minister Pranab Mukherjee, who released the tax code along with his predecessor P. Chidambaram, said the bill could be tabled in Parliament in the winter session.
“It’s a simpler tax code and we expect it will usher in better compliance, better tax realisation and lead to far less litigation,” Mukherjee added.
Chidambaram said the tax code had been written from scratch and could be enacted by 2011, synchronising with the golden jubilee of the Income-Tax Act. The former finance minister had started work on the tax code three years ago.
Wealth tax
The ambit of wealth tax is being widened — and this could prove to be a huge blow to the super-rich. Wealth tax will be levied on a net wealth above Rs 50 crore instead of Rs 30 lakh at present but it will cover assets like shares.
However, the wealth tax rate is being slashed from 1 per cent at present to 0.25 per cent. “This has been done to ensure better compliance,” officials said. “Right now, it is a tax that everybody tries to avoid.”
Industry has been lobbying the government to scrap it since the government expects to raise only Rs 425 crore through wealth tax this year.
The direct tax code will obviate the need to introduce a voluminous Finance Bill every year along with the budget — a tiresome rite that former finance minister Jaswant Singh railed against recently during the budget debate. However, tax amendments will still require sanction from Parliament.
Political parties will be happy to learn that the new tax code allows tax deductions on campaign contributions by both individuals and companies, provided the donation amounts to 5 per cent of a person’s income or the profits of a company.
Source : The Telegraph
Proposed Income Tax Rates for Individuals
| Up to Rs.1,60,000 | Nil |
| From Rs.1,61,000 to Rs.10,00,000 | 10 Per cent (Income exceeds Rs.1,60,000) |
| From Rs.10,01,000 to 25,00,000 | 20 Per cent (Rs.84,000 + Income exceeds Rs.10,00,000) |
| Above Rs.25,00,000 | 30 Per cent (Rs.3,84,000 + Income exceeds Rs.25,00,000) |
Proposed Income Tax Rates for Women-below 65 years
| Up to Rs.1,90,000 | Nil |
| From Rs.1,91,000 to Rs.10,00,000 | 10 Per cent (Income exceeds Rs.1,90,000) |
| From Rs.10,01,000 to 25,00,000 | 20 Per cent (Rs.81,000 + Income exceeds Rs.10,00,000) |
| Above Rs.25,00,000 | 30 Per cent (Rs.3,81,000 + Income exceeds Rs.25,00,000) |
Proposed Income Tax Rates for Senior Citizens
| Up to Rs.2,40,000 | Nil |
| From Rs.2,41,000 to Rs.10,00,000 | 10 Per cent (Income exceeds Rs.2,40,000) |
| From Rs.10,01,000 to 25,00,000 | 20 Per cent (Rs.76,000 + Income exceeds Rs.10,00,000) |
| Above Rs.25,00,000 | 30 Per cent (Rs.3,76,000 + Income exceeds Rs.25,00,000) |
4 comments:
Retirement funds should not be taxed. The only fund that salary earners can look forward to in their old age is retirement fund. In a country where senior citizens are not covered by any kind of Old Age Pension or where the citizens are not covered by any kind of Social Security, I do not think that the Government is wise to think of taxing retirement funds. In fact, in the absence of Social Security and Old Age Pensions, taxing of retirement funds amounts to Cruelty by the Government. I therefore appeal on behalf of the people of India that the Government should withdraw its idea to tax retirement funds.
Dir tax code does not clarify the tax treatment on the amount presently lying in PPF,GPF, LIC, and other small saving schemes and maturing on after 01.04.2011.
Also it is applicable w.e.f.01.04.2011 for which F Y ?
whether for 2010-11 or 2011-2012
Also some of the depositor might have deposited thier surplus savings in Small savings scheme without availing tax exemption benifit but still they have to pay tax on maturity on the implication of dir tax code.
Also the salried employee who recieve certain amount (prequsites)and spent the amount on performing thier duties will have to pay tax on it while the business community wii avail the benefit of depreciation and will allowed certain expenditure and the amount will be deducted from thier gross profit. I think this Dir Tax Code is framed to benifit the business class and to ignore the salried class.
There are many more clauses which have to be carefully examined before implementing the new dir tax code
Mukesh garg
It is very surprising the in the Tax Code the Goverment is thinking of making Retirement Fund Taxable. A person gathers his small small saving for old age & Govt has a eye on that money. It is very shameful for the persons who have such type of narrow mentality.
I thing if any body has human heart than Government must take care before making final decesion. Because Once the rule is formed than changing the same is very difficult.
Taxing on retirement funds is irrationale.Those who have not claimed any tax exemption while investing in the retirement funds are liable to be taxed twice.Because their investment in retirement funds will be out of the income for which tax has already been paid and again at the time of withdrawal. This is not in order. When more financial independency and securrity is needed during old age this will be a burden on Senior citizens.double taxation is illegal
Post a Comment