Fintotal News Analysis | The No-Show of the Direct Tax Code
The No-Show of the Direct Tax Code
Ruby Jacob, 30 Aug 2010

What's happening?

After what seemed like an eternity of discussion and argument, the Direct Tax Code Bill has been tabled in the Lok Sabha on 30 August 2010. Once passed, it will replace the Income Tax Act and come into force from 1 April 2012. This is expected to happen in the winter session, once the parliamentary committees have gone through it.

The Direct Tax Code, once passed, will replace the Income Tax Act. It will have implications for both individuals and corporate tax payers.

What does it mean for me?

The news in the Direct Tax Code is the fact that there is no news! What started off as an ambitious proposal to make tax laws simpler now seems more like the annual tinkering in numbers that we are so used to. There is hardly anything here to warrant a change in tax planning or investment strategy just yet.

For one, the new Code would apply only from 1 April 2012, not 2011 as earlier postulated. There is a marginal widening of slabs, though much less than what was earlier proposed. Of course, such tinkering even happens in regular budgets, so it is hardly worth the hoopla of a new Tax Code. There are some changes expected in the taxation of savings and investments (see table for details).

Head

Proposed Change

Fintotal Comment

Tax slabs

The 10%, 20% and 30% slabs to be at Rs 2 lakh, 5 lakh and Rs 10 lakh respectively

This amounts to only tinkering with slabs, which anyway happens every year

Total investment exemptions

To be raised to Rs1.5 lakh from Rs1.2 lakh currently

Short Term Capital Gains on Equity

To be taxed as per investor's tax slab, as against current uniform rates

Equity will continue to remain a good place to invest for long term

Long Term Capital Gains on Equity

To continue to be tax-free

This further discourages churning of portfolio

Corporate tax rate

Reduced to 30% from current 33.2%

No impact for individuals

Minimum Alternate Tax (Corporate)

Increased to 20%

But given the long period of time left for the Code to come into effect, we don't believe we have seen the last of the amendments and debates on the provisions. In true democratic tradition, we would continue to see lobby groups trying to bend things their way for a long time to come.

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