FM introduced Direct Taxes Code in Parliament
Indian Finance Minister Pranab Mukherjee has introduced the Direct Taxes Code (DTC) Bill in the parliament on Monday.
The bill is expected to come into effect on April 1, 2012 however observers say it lacks the promising reforms that were included in the draft version of the bill. The draft bill called for dropping exemptions on provident funds and life insurance at the time of withdrawal and medical insurance.
The DTC Bill has three income tax slabs with a tax rate of10 per cent tax for income between Rs 2-5 lakh, 20 per cent for earnings between Rs 5-10 lakh and 30 per cent on income above Rs 10 lakh. The bill also calls for exemption level of Rs 1.6 lakh to be increased to Rs 2 lakh from April 1, 2012. The bill also includes the tax exemption for senior citizens to Rs 2.5 lakh from Rs 2.40 lakh.
The bill does not present differentiated rates for men and women unlike the present structure. The tax incentives include deduction of up to Rs 1 lakh for approved long- term savings such as provident funds, superannuation funds, gratuity and pension funds.
The code also exempts Expenditure of up to Rs 50,000 on tuition fees of children, pure life insurance premia and health insurance payments from taxation. The new code will also allow deductions from income tax for interest paid on loans for construction or acquisition of self-occupied house property. It also allows a new deduction for interest on education loan and for payment of expenses of a disabled person or disabled dependent.
The corporate will also have more money n their hands as the new code will fix the corporate tax at 30 per cent and will not include surcharge and cess. The bill aims to increase minimum alternate tax (MAT) from 18 per cent to 20 per cent of book profit and collect dividend distribution tax at 15 per cent.
In order to boost investment flow into capital markets, the government will continue with no longterm capital gains tax. This means that an entity holding shares for a year and longer will not have to pay tax on selling. The investors however will have to pay 50 per cent of the gains earned.
The bill now has been referred to Select Committee of Parliament for scrutiny. It is expected to come into effect April 1, 2012 while the first return on the code will be filed on March 31, 2013.
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