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DTC : Direct Tax Code

The DTC is direct tax code, it  is said to replace the existing Income Tax Act, 1961. The Government had announced its intention to introduce a revised and simplified Income tax Bill. If approved, the DTC shall come into force from April 1, 2012, and shall be applicable for the financial year 2012-13. The new tax code would be a vast improvement over I-T Act 1961. To moderate tax rate and simplify tax laws, all direct taxes including FBT and income tax would be brought under one code. The new code is aimed at eliminating the scope of litigation as far as possible.

Purpose Of DTC

  • Integrate all direct tax laws with a single legislation
  • Simplify the language
  • Provide stability in direct tax rates
  • Strengthen taxation provisions for international deals
  • Minimize exemptions to result in a higher tax-GDP ratio
Direct Tax Code

Highlights of the Direct Tax Code

  • Income tax exemption limit proposed at Rs. 2 lakh per annum, up from Rs. 1.6 lakh
  • 10 per cent tax on annual income between Rs. 2-5 lakh, 20 per cent on between Rs. 5-10 lakh, 30 per cent for above Rs. 10 lakh
  • Tax burden at highest level will come down by Rs. 41,040 annually
  • Proposal to raise tax exemption for senior citizens to Rs. 2.5 lakh from Rs. 2.4 lakh currently
  • Corporate tax to remain at 30 per cent but without surcharge and cess.
  • The Minimum Alternate Tax (MAT) rate has been increased from 18 to 20 per cent.
  • Dividend distribution tax, tax on distributed profits of a domestic co will be 15 per cent
  • Exemption for investment in approved funds and insurance schemes proposed at Rs. 1.5 lakh annually, against Rs.1.2 lakh currently.
  • DTC removes most of the categories of exempted income. Equity Mutual Funds (ELSS), Term deposits, NSC (National Savings certificates), Unit Linked Insurance Plans (ULIPs), Long term infrastructures bonds, house loan principal repayment, stamp duty and registration fees on purchase of house property will loose tax benefits.
  • Only half of Short-term capital gains will be taxed
  • For incomes arising of House Property: Deductions for Rent and Maintenance would be reduced from 30% to 20% of the Gross Rent. Also all interest paid on house loan for a rented house is deductible from rent.
  • Tax exemption on Education loan to continue.
  • Tax exemption on LTA (leave travel allowance) is abolished.
  • Taxation of Capital gains from property sale : For sale within one year, gain is to be added to taxable salary.
  • Tax on dividends: Dividends will attract 5% tax.
  • Medical reimbursement : Max limit for medical reimbursements has been increased to 50,000 per year from current 15,000 limit.

New Tax Slab Proposed

Present Tax Slab Proposed Tax slab
Rs. 0 to Rs. 1,60,000 : No tax Rs. 0 to Rs. 2,00,000 : No tax,
Rs. 1,60,000 to Rs 5,00,000 : 10% Rs. 2,00,000 to Rs 5,00,000 : 10%
Rs. 5,00,000 to Rs. 8,00,000 : 20% Rs. 5,00,000 to Rs. 10,00,000 : 20%
Rs. 8,00,000 and above : 30% Rs. 10,00,000 and above : 30%

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