Direct Tax Code

A New Tax Order

Wallet friendly taxcode gets the Cabinet nod.

Corporates to welcome 30% cap on tax but the

Increase in Mat rate a dampner.

Background on Income Tax Act and Direct Tax Code

Source:

Aims at reducing tax rates, but at the same time expanding the tax base by minimizing exemptions.

Uniform corporate tax rate for domestic and foreign companies

Direct Tax Code

Income Tax Rates/Slabs Rate (%)

Up to 1,60,000Up to 1,90,000 (for women)Up to 2,40,000 (for resident individual of 65 years or above)

NIL

1,60,001 – 5,00,000 10

5,00,001 – 8,00,000 20

8,00,001 upwards 30

Income Tax slabs for Financial Year 2010-11

The first draft proposed that that investments like PF and PPF would be taxed at the time of redemption, i.e moving from EEE (exempt- exempt- exempt) to EET (exempt- exempt- tax)

Income Tax Rates/Slabs –as Proposed in first Draft

Rate (%)

Up to 1,60,000Up to 1,90,000 (for women)Up to 2,40,000 (for resident individual of 65 years or above)

NIL

1,60,001 – 10,00,000 10

10,00,001 – 25,00,000 20

25,00,001 upwards 30

Initial Draft proposed Financial Year 2012-13

Income Tax Rates/Slabs – To be tabled in the Parliament

Rate (%)

Up to 2,00,000Up to 2,50,000 (for women)Up to 2,50,000 (for resident individual of 65 years or above)

NIL

2,00,000 – 5,00,000 10

5,00,001 – 10,00,000 20

10,00,001 upwards 30

Income Tax slabs for Financial Year 2012-13

Major amendments introduced in DTC bill for FY 2012 2013:

The new code comes into effect from April, 2011. Housing loan exemption of 1.5 lakh would be available to

individual taxpayers on interest component

Deduction up to Rs 50,000 for life insurance and health insurance

policies or tuition fees.

The corporate rate for both domestic and foreign companies in

proposed at 30% as compared to present 34% Withdrawals from PF and PPF will continue to be treated as EEE i.e

not tax on which is a deviation from the first proposal.

Highlights of the proposed Direct Tax Code

The government proposes to increase the Minimum Alternate Tax on book profits from 18% to 20%. A minimum alternate tax (MAT) is the one which is had to be paid by the companies that are enjoying various tax exemptions under different schemes

ULIPs (Unit Linked Insurance Plans) and tax saving mutual funds (ELSS) would no longer be available for exemption once the new tax code comes into effect

The revised DTC has not state anything on HRA (House rent Allowance) exemption which is claimed by individuals staying in rented accommodation.

Securities transaction tax for capital market transactions will remain sameDividend distribution tax of 15% remains same

Highlights of the proposed Direct Tax Code

The savings could moderately be higher but the tax been on imposed on ULIPs and tax saving mutual funds could offset the same.

As the exemption of tax on HRA is still not clear it could affect the savings on individuals

The corporate tax has been reduced to 30% from 33.2% . The bill also seeks to remove surcharge and cesses on corporate tax, which could provide relief to business houses.

As MAT has been increased, it could affect IT and Pharmaceutical companies majorly.

The Dividend Distribution Tax will be levied at 15%.

How will it affect us?

THANK YOU!