Direct tax code 2011 ..old wine in new bottle

The Union Cabinet on Thursday approved new rules of direct tax code 2011. In the major changes government proposes to raise income tax exemption slab from 1.6 lakh to 2 lakh, leaving more tax free money in the hands of individuals, and a lower tax rate for companies as well.

The much hyped Direct Taxes Code, or DTC, Bill, which strive for to replace the nearly 50-year-old income tax law, is likely to be introduced in house on Monday and may then be discussed to a select committee of members of both houses of Parliament.

The basic exemption limit is proposed to be raised to 2 lakh from the previous 1.6 lakh and corporate tax rate for both domestic and foreign companies proposed is at 30%, finance minister Pranab Mukherjee told to media persons after the meeting of the Union Cabinet held on Thursday.

Senior citizens and women will enjoy a higher exemption as it was expected and the limits are up to 2.5 lakh. The companies will be happy because there will be no surcharge or cess on them, and bringing the down the corporate tax rate to 30% from present 34% it will left more cash for them.

The new code proposes three income tax slabs—income of up to 2-5 lakh will face 10%, 5-10 lakh will attract 20% and income more than 10 lakh will face tax at the rate of 30%. The housing loan exemption of 1.5 lakh would also be available to individual taxpayers on the interest component.

“The new changes in the tax rates, expected to come into effect from April 1, 2011, could lead to some loss in revenue and raise the government’s deficit however it will benefitted in longer term.

However, the government recommends raising the minimum alternate tax (MAT) on book profits to 20% from current 18%. The move will be a big blow for Reliance and a host of IT and infrastructure companies that pay MAT.

Overall the new proposal in direct tax code 2011 has nothing fundamental change they followed the set trend by previous government, no significant change in the tax slab, no alteration in long term and short term capital tax gain which was earlier expected to change it is simply old wine in new bottle.