Tax code only from 2012

BS Reporter / New Delhi August 31, 2010, 0:16 IST

Levies up for women taxpayers, investors in Ulips and SEZ developers.

The Direct Taxes Code (DTC) Bill that was introduced in Parliament today proposes
some relief to individuals and companies. But a closer read suggests that women
taxpayers, developers of special economic zones and units in these areas, as well as
those investing in unit-linked insurance plans, are in for harder times.

The only saving grace is that these individuals and companies will get an additional
year’s breather, as the new legislation to replace the Income-Tax Act, 1961, is slated to
come into force only from April 2012. Like the Goods and Services Tax, this is again a
case of missed deadlines, since the original schedule was to shift to DTC from April
2011.

Under the new regime, companies will pay 30 per cent corporation tax, including cess and surcharge,
instead of the present combined levy of 33.2 per cent. Besides, the tax rate for foreign companies will now
be the same as domestic companies.

The Bill — the result of two rounds of consultations and factors in 1,600 comments — proposes to increase
the exemption limit for individuals from Rs 1.6 lakhs to Rs 2 lakhs. Accordingly, the slabs have also been
reworked. Those with a taxable income of Rs 2-5 lakhs will be taxed at 10 per cent; those in the Rs 5-10
lakhs bracket will have to pay 20 per cent; while taxable income of over Rs 10 lakhs will attract a 30 per cent
levy.

Though this is lower than what was proposed in the first discussion paper released last August, exemption
on saving instruments, which were proposed to be withdrawn, has been retained. In fact, there have been a
few additions to the list such as investment in the New Pension Scheme.

Senior citizens are in for some relief, but ‘gender equality’ has meant that the additional exemption limit so
far available to women taxpayers will be withdrawn once DTC comes into effect.

By widening the ambit of the minimum alternate tax (MAT), the government is hoping to make up for some
revenue loss caused by giveaways to individuals (Rs 14,343 crores) and companies (Rs 38,829 crores).
Despite this, tax buoyancy will come to the aid of the exchequer.

Against the budgeted direct tax collection of Rs 4,29,000 crores in the current financial year if the present
tax regime continued, the Centre expects to garner Rs 5,80,417 crores in 2012-13 when DTC kicks in. With
relief to taxpayers, it now hopes to collect around Rs 5,27,000 crores, said revenue secretary Sunil Mitra.

The reworked slabs are expected to benefit a majority of taxpayers.

Of the 32.5 million of them, 96 per cent are in the '1-5-lakh bracket. These taxpayers pay around 30 per cent
of the direct taxes. Mitra said 2.2 per cent of taxpayers, who have a taxable income of over '8 lakhs, account
for 60 per cent of the Centre’s direct tax collections, with the remaining 10 per cent coming from those in the
'5-8-lakh bracket.

Finance Minister Pranab Mukherjee told Business Standard that the Bill contains various provisions that
would help individuals save on tax. He added the Bill would be referred to a standing committee of
Parliament, against the earlier plan to refer it to a select committee comprising members only of the Lok
Sabha.

Tax experts said to discourage people from purchasing Ulips and equity-linked savings schemes, exemption
limits have been reworked in the DTC Bill. Going forward, investments of up to '1 lakh in provident fund,
public provident fund, and pension schemes will be exempt. A further exemption of '50,000 will be available
for health and life insurance premia and tuition fees.

However, if you hold insurance policies, where over 65 per cent of the premium is used to buy equity shares,
or equity-oriented mutual funds, the government intends to levy a 5 per cent tax on income distributed by the
fund house or the insurer.

For companies paying MAT, there is relief in the form of a continuation of the system of assessment on book
profits. While MAT credit can be carried forward for 15 years, the rate is being increased to 20 per cent from
19.93 per cent, including cess and surcharge.

TWO SIDES OF A COIN

PAIN

# Women will not get any additional tax benefits

# Fund houses face 5% tax on distribution income for

Ulips, equity-linked MFs

# SEZ developers face tax burden starting April 2012

# More non-profit firms will come under the tax net

# Area-based incentives and some of the sectoral sops will

be discontinued

GAIN

# Savings of up to '41,000 for those earning '10 lakh

# Foreign companies to pay tax at the same rate as local

companies

# Corporate tax rate lowered from 33.2% to 30%

# Short-term capital gains rationalised

# No tax on maturity amount of New Pension Scheme at

the time of withdrawal

“It appears that there is no provision for carry forward of MAT credit available under the existing Income-Tax
Act, which may result in hardship to taxpayers. The only relief granted is MAT credit paid under DTC will be
available up to 15 years, unlike 10 years available under the Income-Tax Act,” said Sunil Shah, a partner at
Deloitte Haskins & Sells.

PERSONAL INCOME-TAX RATES

Rate Now Proposed
10% 1.6-5 2-5
20% 5-8 5-10
30% 8 & above 10 & above
Amount in Rs lakh
l Corporate Tax of 30% will apply to both foreign and domestic firms
l MAT: Will rise from 19.93% to 20%
In the case of SEZ developers, the government has decided to limit profit-linked benefits for zones that are
notified after March 2012. In case of units, the cut-off date has been fixed as March 2014. SEZ developers
and units are also included under the MAT regime under the DTC.

In order to garner more resources from fund houses that have a bulk of assets under management in debt
schemes, the government proposes to increase the tax rate for them from the present 25 per cent to 30 per
cent, which is the corporation tax rate. Nearly three-fourths of the '8,00,000-crore average assets under
management are in debt-oriented schemes

INDIA INCOME TAX SLABS - DIRECT TAX CODE 2011-2012

New Direct Tax Code in 2011-2012, India
Government of India has proposed a new Direct Tax code or Direct Taxes Code to replace

the old Indian Income Tax Act of 1961. This Direct Tax code is an attempt to simply the

tax-life of an individual. The way it works is that the income tax slabs are increased,

however several deductions (e.g. deduction on housing loan) and tax-breaks are taken

away. A detailed post will be written about Direct Tax Code. Below you will find the

proposed income tax slabs under the Direct Tax code will be debated in the Parliament

and if approved, will be implemented in 2011-2012.

Income Tax rates or Tax Slabs under Direct Tax Code : Table
Direct Tax Code slabs, 2011-2012, Men
Income: upto 1.6 lacs no income tax
Income : 1.6 lacs to 10 lacs 10 %
Income : 10 lacs to 25 lacs 20 %
Income : above 25 lacs 30 %

Direct Tax Code slabs 2011-2012, Women

Income : upto 1.9 lacs NO TAX
Income : 1.9 lacs to 10 lacs 10 %
Income : 10 lacs to 25 lacs 20 %
Income : above 25 lacs 30 %

Direct Tax Code slabs 2011-2012, Senior Citizen

Income : upto 2.4 lacs NO TAX
Income : 2.4 lacs to 10 lacs 10 %
Income : 10 lacs to 25 lacs 20 %
Income : above 25 lacs 30 %
Education cess and surcharge on total income tax
It is not clear whether education cess and surcharge will be applicable on income tax

collected under direct tax code. According to the current indian income tax act, in

addition to the income tax calculated according to the above income tax slabs, a 3% of

Education cess is charged on the total Income tax paid (not on the total taxable

income). If the taxable income exceeds Rs. 10 lacs, a 10% surcharge on the total

income tax (not on the total taxable income) is also charged