After much deliberations and discussions, the government has settled for a much milder version of the direct tax code (DTC), a far cry from the earlier promised ‘sweeping changes’ in the country’s direct tax laws. The new tax law proposes to increase the income tax exemption limit from Rs 1.6 lakh to Rs 2 lakh. For senior citizen and women, the exemption limit is Rs 2.5 lakh.
The new tax slabs as proposed by DTC is 10 per cent for incomes from Rs 2 lakh to Rs 5 lakh, 20 per cent for Rs 5-10 lakh and 30 per cent for income over Rs 10 lakh. At present, income between Rs. 1.65 lakh and Rs 5 lakh is taxed at 10 per cent tax, income for Rs 5-8 lakh is taxed at 20 per cent and above Rs 8 lakh, the tax rate is 30 per cent.
The original draft had proposed tax at 10 per cent for income up to Rs 10 lakh, 20 per cent for income between Rs 10 lakh and Rs 25 lakh, and 30 per cent for income above Rs 25 lakh.
Tax on wealth over Rs 1 crore will be 1 per cent. The final draft (as approved by the Cabinet) continues with the tax deductions under Section 80 (c) of the existing Income Tax law. The original draft had proposed to do away with any kind of tax exemption while increasing the tax slabs as mentioned above. The new code proposes a 30 per cent corporate tax from the existing effective rate of 33.22 per cent on account of cess and surcharges. The DTC seeks to impose a minimum alternate tax (MAT) of 20 per cent of the book profit against the existing 18 per cent.
The direct tax code is likely to be implemented from April 1, 2011.