The Direct Tax code in India is very much discussed and criticized now a days. So what it means by direct tax code? and what are the myths about this tax code? let us discuss in this article in detail. In fact, many people have requested me to write a separate article about DTC on MJ2BC - Personal finance Blog India.
In fact, recently it is a hot topic on Investta - Entrepreneur & Investors Forum. so I decided to write a separate post on this topic.
What is Direct Tax code?
In Simple layman's language, there are basically two types of taxes - Direct and Indirect
Direct tax is one which is taken by taking into consideration the individual characteristics of the tax payer such as Income tax.
While Indirect tax means the tax which is levied by taking into consideration the number of transactions such as Sales Tax.
Recently the IT department of India has put the new proposal for Direct Tax in front of Government of India and this is known as Direct Tax code (DTC).
What is the Aim of DTC?
The aim of DTC is to make the current tax structure in India easy. Well, yes. This is the basic aim of DTC.
The last Tax code in India was designed in 1961 and that's why we call it Income Tax Act 1961. But after half a century everything is changed and we can not simply rely on the age old tax system.
India needs a new taxation system. So if this proposal gets approved, our new tax code will be Income Tax Act 2010 or 2011 something......Understand?
Than why DTC is so much criticized?
Even though, the basic aim behind DTC is simple and helpful to the people, it is very much creticized because many provisions under this proposal may harm the investors and FIIs. Say for Example, there is a proposal of taking long term capital gains tax on listed Equity Investments. Now, till date the long term capital gains tax on equity was 0%. Means if you invest in equity for more than 1 year of time horizon than all your capital gains is tax free.
But according to this proposal, there will be long term capital gains tax on equity investments. this may harm the investors.
When DTC will be implemented?
Experts say that DTC will be implemented since April 2011.
Changes Proposed in Direct Tax code -
01) Change in Income Tax slabs -
Rs.0 to 1.6 lakh - 0%
Rs.1.6 lakh to 10 lakhs - 10%
Rs.10 lakhs to 25 lakhs - 20%
Rs.25 lakhs and above - 30%
02) Inclusion of perks in salary -
Up to now, the perks given by companies to their employees were not taxed but according to this draft, now it will be considered as your salary and will be taxed.
So this may increase the taxable income of many people.
03) Abolishment of Securities Transaction Tax (STT) and applying Long term Capital gains tax on Equities -
Right now it is reverse. But according to the new proposal, the government is planning to take long and short term capital gains tax on Equity investments. However, this will harm the long term growth of India.
but well, right now this is just a proposal. the DTC is not accepted yet. So just wait and watch what happens?
04) Increase in Tax Exemption Limits -
Now, this is a great thing for investors. Right now according to Section 80c of Income Tax Act, you can deduct maximum Rs.1 lakh of Tax. but according to this proposal, it will be Rs.3 lakhs.
Isn't it great news? you can now save a tax up to Rs. 3 Lakhs.
05) Proposal to move to Exempt-Exempt - Taxed (EET) Regime -
This move will affect popular investments like PPF, EPF and GPF.
If the proposal is accepted, it will bring NPS (New Pension Scheme) on par with other long term investments meant for retirement.
06) Increase in Maximum Limit for Wealth Tax -
Up to now, you don't have to pay any wealth tax up to Rs.30 lakhs of wealth. But according to this draft, this limit will be increased to Rs.50 lakhs. Isn't it great?
Summary -
In conclusion, the DTC is proposed to make all the tax laws simple.It has also increased the limits of income tax and wealth tax by several folds. There are some disadvantages also but over all right now it looks that it has many advantages.
So let's hope that everything goes smoothly.
Posts
Hi..This is Niket..First of all- great blog!1 :)
My question is about dividend tax. Is dividend income included in the total income for I-T ? and will it be in DTC?
Hello Niket,
Well, you can post your same query on the Investta.com - The forum for investors and entrepreneurs.
We will be really happy to discuss this thing over there. So I request you to kindly start a new discussion thread on Investta. This will be easy and beneficial for everyone.
Many thanks!
I searched through the whole Internet to find info about changes in Hindu taxation.