DIRECT TAX CODE & ITS IMPACT ON INDIAN ECONOMY

7/23/12

GROUP MEMBERS
NILAM SINGH NITISH KEDIA VIJAYA VIJIT VENUGOPAL

7/23/12

Direct tax code

The finance minister has released a new draft direct tax code, which is a document containing changes in exemptions tax slab. This will be a big change to four decades old income tax act.

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Salient features of Direct Tax Code

DTC removes most of the categories of

exempted income .

Tax saving based investment limit remains

100,000 but another 50,000 has been added just for pure life insurance.
The tax rates and slabs have been

modified.
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Men and women are treated same now. Surcharge and education cess are

abolished.

Tax exemption on LTA (leave travel

allowance) is abolished.

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 Tax exemption on Education loan to

continue.
Corporate tax reduced from 34% to 30%

including education cess and surcharge.

Taxation of Capital gains from property

sale.

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Tax on dividends. Bad news for NRIs.

Exemption will remain same as 1.5 lacs per year for interest on housing loan for self-occupied property.

Only half of Short-term capital gains will be taxed.

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What is the importance of Direct Tax Code?

Under DTC-II, the proposal is to tax all

companies including the foreign companies @ 30% - No surcharge no education cess.

Offers big saving to Tax payers. Medical re-imbursement.

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Comparison between ITA & DTC :

Income Tax Act

EEE where

investment, interest& the maturity amount remains tax free.

Code EET is a tax system where an investment in a savings plan is deductible from income.
Men & Women are

Direct Tax

Men & Women were

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treated differently.

treated equally.

Income Tax Act

Code

Direct Tax

Surcharge &

Surcharge &

Education Cess were charged.

Education Cess are abolished.

LTA (Leave Travel

LTA exemption is

Allowance) is exempted. 7/23/12

abolished.

Act
Men (Rs)

Income Tax

Direct Tax Code

Rate % 0

Wome Senior Rate n (Rs) Citizen( % Rs) Up to Up to Up to 0 1.6 1.9 2.4 lakh lakh lakh 1.6-5 1.9-5 2.4-5 10 lakh lakh lakh 5-8 5-8 5-8 20 lakh lakh lakh Above Above Above 30 8 lakh 8 lakh 8 lakh
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Annual Income (Rs) Up to 2 lakh (Senior Citizens 2.5 lakh) 2-5 lakh 5-10 lakh Above 10 lakh

10 20 30

Salary income Rs 15 lakh ANNUAL INCOME SLABS TAX Current exemption SENIOR MEN WOMEN SENIOR RATE MEN WOMEN Rs 1.2 lakh (Rs.) (Rs.) CITIZEN % (Rs.) (Rs.) CITIZEN LAKH LAKH (Rs.) Taxable Salary (Rs.) RsLAKH lakh 13.8
0-1.6 001.9 2.40 1.6-5 1.9-5 2.4-5 5-8
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Current -

0% 10%

5-8

5-8

34,000 31,000 26,000 20% 60,000 60,000 60,000

Proposed DTC Rs 15 lakh Rs 1.5 lakh

ANNUAL INCOME SLABS MEN & WOMEN (Rs) LAKH 0-2 2-5 5-10
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Salary income DTC exemption Taxable salary

TAX

Rs 13.5 lakh

SENIOR RATE MEN (Rs) WOMEN SENIOR CITIZEN (Rs) CITIZEN (Rs) (Rs) LAKH 0-2.5 0% 0 0 0 2-5 5-10 10% 20% lakh 30,000 1 lakh 30,000 1 lakh 25,000 1

Impact on Indian Economy

Positive implications :

Investors with long term gains better. Senior citizen will acquire good relief. Investors get dual benefit.

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Other implications:
Rs 60,000 or Rs 40,000 can be claimed in respect

of treatment of diseases that are uncommon like HIV, etc.

Lesser options available for investments in tax

saving schemes.

Great disappointment for risk savvy investors of

ELSS who seek to combine, market investments with tax saving.

ULIPs and ELSS are no longer attractive options.
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Conclusion:
The proposed Direct

Tax Code is a combination of major tax relief and removal of most tax-exempted benefits.

The Tax Code raised

income tax slabs significantly, lowering the tax burden on 7/23/12

THANK YOU!

7/23/12