What is Direct Tax code ?
The Finance Ministry has released a new draft direct tax code, which is a document containing changes in Exemptions , Tax slab . This will be a big change to four-decades old Income Tax Act . As per the proposal , the new tax slab would be
• 0% : Less than 1.6 lacs
• 10% : 1.6 – 10 Lacs
• 20% : 10 – 25 Lacs
• 30% : 25+ Lacs
This sounds really amazing , almost 98% of Indians will then pay 10% or less tax because majority of people taxable income is below 10 Lacs (thats very obvious) . We will see a comparison at the end
Dont worry
6. Perks now will be included as a part of the income for purpose of tax calculation, so tax burden may be sightly more.
All the perks you were getting from your employer like interest free loan , free lunch etc will get added to your income and taxed .
7. Lowering Corporate tax to 25% from 30%
This will cheer up companies as their tax burden would reduce . I am not sure about its impact on common person .
Comparison of New Vs Old Tax Code
Lets see an Example
Name : Rajesh Singh
Salary : 8 lacs per year
Investments : Investment of 30k in Mutual funds , 30k in EPF , 20k in PPF and 20k in Insurance Policy .
Home Loan : Taken a Home loan and pays 80k as Principle and 1.4 lacs as Interest .
Tax as per Current System
Amount Exempted = 1.4 lacs as home loan interest + 1 lac in 80C = 2.4 Lacs
Taxable Income = 5.6 lacs
Tax = 14k (10% from 1.6 to 3 lacs) + 40k (20% from 3 – 5 lacs) + 18k (30% on 5 – 5.6 lacs) = Rs 72,000
Tax as per New Tax Code
Amount Exempted = 1 lac from (mutual funds , PPF , EPF , Insurance) + 80k as Home loan principle = 1.8 lacs
Taxable Income = 6.2 lacs
Tax = Rs 44,000 (10% on 1.6 lacs – 6.2 lacs)
Note : Your Tax Liability will be totally different and can vary a lot depending on the your condition , Dont take this one personally , This example is just for demonstration Purpose .
Is New Tax Code Good or Bad
This is an important and good question , I will classify this tax code as a good one , the biggest thing to note in this is that the tax slab is just 10% for income from 1.6 lacs to 10 lacs There are many changes in the new tax code which may look bad and hurting , but at the end you will gain from it , because the tax charged will be just 10% , So your taxable salary will go up because of some changes but your tax liability will actually reduce . It will not reduce too much though , but surely it will be a reason to cheer .
Your biggest doubt will be that over long term if my Maturity amount from Mutual funds , Insurance policies and PPF will become taxable , then yes that true , but now you will save more to invest . So even if we assume 20% tax charged at the end , we need to invest 25% more than what we usually do to gain , which will happen I believe .. Anyways , this is now a debatable topic and can be argued upon .
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 %
.
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