<ul><li>Income Tax Act (IT Act) came into legislation in 1961. </li></ul><ul><li>This Act has been criticized for being economically inefficient, incompatible with the current requirements and inequitable to all tax payers. </li></ul><ul><li>So, in August 2009, the Ministry of Finance came out with the draft of Direct Tax Code (DTC) bill with the purpose of replacing the existing IT Act and also invited the public for discussions and feedback on the draft proposal. </li></ul>
<ul><li>Introducing DTC is to eliminate the plethora of tax exemptions or subsidies that create distortions. </li></ul><ul><li>The new tax code is expected to widen the tax base, end unnecessary exemptions, moderate tax rates and add to the government's funds. </li></ul>
The basic tax exemption limit for an individual male and female has been raised and brought at par from Rs 1,60,000 and Rs 1,90,000 to Rs 2,00,000 per annum. Senior citizens, however, will now enjoy a tax exemption on income up to Rs 2,50,000 per annum instead of Rs 240,000 allowed now. Income slab existing Rate of Income Tax Income slab proposed by new revised DTC Up to Rs 160,000 nil Up to Rs 200,000 Rs 160,001 to Rs 300,000 10% Rs 200,001 to Rs 500,000 Rs 300,001 to Rs 500,000 20% Rs 500,001 to Rs 1,000,000 Above Rs 500,001 30% Above Rs 1,000,001
TAX SLABS, WOMEN Income slab existing Rate of Income Tax Income slab proposed by new revised DTC Up to Rs 190,000 nil Up to Rs 200,000 Rs 190,001 to Rs 300,000 10% Rs 200,001 to Rs 500,000 Rs 300,001 to Rs 500,000 20% Rs 500,001 to Rs 1,000,000 Above Rs 500,001 30% Above Rs 1,000,001
TAX SLABS, SENIOR CITIZEN Income slab existing Rate of Income Tax Income slab proposed by new revised DTC Up to Rs 240,000 nil Up to Rs 250,000 Rs 240,001 to Rs 300,000 10% Rs 250,001 to Rs 500,000 Rs 300,001 to Rs 500,000 20% Rs 500,001 to Rs 1,000,000 Above Rs 500,001 30% Above Rs 1,000,001
<ul><li>Savings, in the form of provident funds whether public provident fund, government provident fund, or employees provident fund </li></ul><ul><li>The new DTC savings limit allowed for deduction from the taxable income has been increased </li></ul>DTC SAVING LIMIT Existing Limit Proposed Limit Rs 120,000 (including Rs20,000 for investment in infrastructure bonds) Rs 150,000 which is decomposed as Rs 100000 for investment in provident funds, pension funds and other approved securities like gratuity; and Rs 50,000 for child’s tuition fees, life insurance and health insurance premiums. If you invest in infrastructure bonds, deduction of an additional Rs 20,000 also can be claimed.
Retirement is the stage of life after working . Existing Limit Proposed Limit Any withdrawal from the Retirement Benefit Account (RBA) is taxable. New proposed DTC exempts even withdrawal. Employee’s contribution to his pension fund that will be deducted from his taxable income is 1,00,000 per annum. Employee’s contribution to his pension fund that will be deducted from his taxable income has been increased to Rs 300,000 per annum.
Tax practitioners said that the move will help salaried individuals meet the cost of some of the surgeries since the present limit was low and was mostly used up by consultation fees and cost of medicines. Medical reimbursement means compensation claim in case of any medical treatment or claim in case of money spent on any medical services. Existing Limit Proposed Limit Medical reimbursement of only 15,000 a year should be exempt from the tax. Medical reimbursements of up to Rs 50,000 a year will be proposed to be exempt from tax.
CAPITAL GAINS <ul><li>Transfer of capital assets results in capital gains. A capital gains tax is the tax levied on the profit released upon the sale of a capital asset. According to I.T. Act, 1961 as property of any kind held by an assessee such as real estate, equity shares, bonds, jewellery, paintings, art etc. are capital assets. </li></ul><ul><li>For tax purposes, there are two types of capital assets: </li></ul><ul><li>Long term: Long term asset are held by a person for 3 years except in case of shares or mutual funds which becomes long term just after one year of holding. </li></ul><ul><li>Short term: Short term asset are held by a person for not more than 3 years and in case of shares period has been reduced to 12 months. </li></ul>
Existing Limit Proposed Limit Short term capital gains are now taxed at the rate of 15% for all (17% including surcharge and cess). From 1-04-2012 onwards around 50% of the gain will be exempt and the rest will taxed at the income tax rates 15%
Dividends are payments made by a company to its shareholder members. When a corporation earns a profits or surplus, that money can be put to two uses: it can either be re-invested in the business called retained earnings, or it can be paid to the shareholders as a dividend. Existing Limit Proposed Limit According to the income tax act 1961, dividend distribution tax is 16.61%. In the proposed direct tax code dividend distribution tax will decreased to 15%
Leave Travel Allowance (LTA) is basically defined as the cost of travel granted to employees to travel anywhere in India, while on leave from work. The amount of exemption depends upon the mode of travel, and it is allowed only towards the travel fare, and not for boarding and lodging. Existing Limit Proposed Limit In the present system, leave travel allowance is completely exempted from tax. In the proposed DTC, LTA will form part of your total income but qualify for deduction.
Existing Limit Proposed Limit Currently, a penalty is levied for concealing the particulars of your income and if you are able to convince the Government that you didn't intend to evade tax; you are let off without any penalty. Under DTC, tax department will have more powers to force a penalty. In the new tax code, you will be levied penalty even for under-reporting. Currently, the penalty for tax evasion will 300% of the tax due. In new proposed DTC the penalty for tax evasion will reduced to 200% of the tax due.
MEANING- : To give a boost to primary education in the country and in conformity with the Common Minimum Programme of the UPA government, Finance Minister P.Chidambaram on July 2004 proposed to levy a Education cess of two per cent on income tax, corporation tax, excise and customs duties and service tax. The new cess was expected to yield about Rs 4,000-5,000 crore (Rs 40-50 billion) per annum and the entire amount will be earmarked for education including provision of nutritious cooked mid-day meal. The education cess will be a 3 per cent surcharge on the total payable tax, and not 3 per cent of total income. SURCHARGE AND EDUCATION CESS ARE ABOLISHED.
Terms Abolished under new DTC <ul><li>Earlier Income Tax Act and Wealth tax Act (Covering Income Tax, TDS, FBT and Wealth taxes) are abolished and single code of Tax, DTC in place. </li></ul><ul><li>Concept of Assessment year and previous year is abolished. Only the “Financial Year” terminology exists. </li></ul><ul><li>Only status of “Non Resident” and “Resident of India” exits. The other status of “resident but not ordinarily resident” goes away. </li></ul><ul><li>. </li></ul>
Effect of DTC on people on paying taxes From To Result 0 1,60,000 No Difference 1,60,000 2,00,000 Earlier paying 10% , They will not pay now. 2,00,000 5,00,000 Saving of 4000 (40,000×10%) 8,00,000 10,00,000 Earlier paying 30%, Now they will save 10% 10,00,000 More… Continue to pay 30%
Data Crunching:- How many people paid tax & at what rate?
Tax Payers number mismatch <ul><li>Government and many international agencies claim that the middle class population in India is 300 million. </li></ul><ul><li>300 million people means at least 60 million families. </li></ul><ul><li>Let one family pays only one tax. </li></ul><ul><li>our tax payees are only 3.25 crore. </li></ul>
Big question? <ul><li>Why the other 2.75 crore people are not paying taxes? </li></ul><ul><li>Are they farmers? </li></ul><ul><li>Are they businessmen? </li></ul><ul><li>Are they Politicians? </li></ul>
References <ul><li>Direct Taxes Code :- A report by Central Board of Direct Taxes Department of Revenue Ministry of Finance . </li></ul><ul><li>Direct tax code :- Indian government Bill </li></ul><ul><li>www.taxmann .com </li></ul><ul><li>www.finmin.nic.in </li></ul>