Wednesday, August 12, 2009
Government on Wednesday, 12th August 2009 proposed a new tax code for Winter session of Parliament 2009. As per the new tax code which is believed to be effective from financial year 2011, Government has indicated radical tax reforms by moderating income tax rates, abolishing STT (Security Transaction Tax) and increasing deduction amount for savings to Rs. 3 lakh.
If the proposal gets passed, then it will be a sign of joy for many income tax payers. Government has proposed different tax slabs and increased the slabs significantly high. Now there would be only 10% tax till Rs. 10 lac of income. So you would have to pay tax on Rs. 8,40,000 (10,00,000 - 1,60,000), i.e. only Rs. 84,000/-.
And if your income crosses Rs. 10 lac, then it would be 20% on the income above Rs. 10 lakh upto Rs. 25 lakh. Above 25 lacs, it would be charged at 30% rate.
As per Finance Minister, Mr. Pranab Mukherjee, Government is abolishing STT but 'long term capital gain tax' may again get introduced on the securities trading. This draft also proposed a exempt-exempt-tax versus an exempt-exempt-exempt (EEE) for savings.
The new code seeks to consolidate and amend the law relating to all direct taxes, that is, income-tax, dividend distribution tax, fringe benefit tax and wealth-tax so as to establish an economically efficient, effective and equitable direct tax system which will facilitate voluntary compliance and help increase the tax-GDP ratio.
As an update, this draft was open for public suggestions and now a second draft is expected to come in the month of June 2010 after considering suggestions. Now, it is expected that Government may drop the exempt-exempt-tax (EET) proposal for taxation of savings as this was one of the most controversial clauses in the first draft of the DTC.