HIGHLIGHTS OF NEW DIRECT TAX CODE

The New Direct Tax Code prima facie looks like give common man much more relief to spend more by saving tax on income. Further for India Inc also its time to celebrate since surcharge will be removed and tax rates have been drastically reduce so giving more room for good dividend to investors / reinvest for expansion. This one can think as indirect stimulus by directly giving goodies for common man. Now there is a caveat, this draft Tax code will be discussed in parliament in the winter session and if it gets the green signal will be implemented for assessment year 2011. So we have atleast couple of years to live with current Tax structure.

Highlights of the Draft Tax Code Bill

1. Lowers the incidence of tax on corporate and individual incomes
2. Reintroduces wealth tax and capital gains tax, albeit at lower levels
3. Scope of income tax expanded to include value of perks, gifts, profit in lieu of salary and capital gains but excludes farm income.
4. Removal of most exemptions
5. All long-term savings to come under EET
6. Tax exemption to PPF and other pension schemes on withdrawals accumulated up to March 31, 2011.
7. The code proposes to abolish STT.
8. Capital gains on shares and securities to be taxed as income.
9. Distinction between long-term and short-term capital assets to go.
10. Wealth tax cap to be hiked to Rs 50 Lac.
11. Wealth to be taxed on net basis; Amount in excess of Rs50lac to be taxed at 0.25%
12. Moves the base year for calculation of capital gains tax to April 2000
13. Hike in tax deduction limit on savings to Rupees 3 lakhs
14. Higher income tax slabs, lowering net payable taxes.
15. Tax breaks on housing to be removed
16. Dividend will continue to be tax-free in the hands of investors
17. Effective corporate tax rate at 25% with no surcharge or cess
18. MAT to be levied on gross assets as against book profits now
19. MAT carry forward to be disallowed
20. Business losses to be carried forward indefinitely
21. No tax deduction on interest payable on any government security
22. Wealth tax liability to be discharged by payment of prepaid taxes
23. Income from certain transfers not to be treated as capital gains
24. Rationalization of taxes for all non-profit organizations
25. Annual disclosure of profits of non-life insurance businesses
26. Govt may enter overseas agreements for double taxation avoidance
27. No tax deduction on interest payable to banking firms and insurers