The Finance Ministry has released a new draft direct tax code. This is the document which proposed significant changes in the direct taxation structure, savings, exemptions. This is very important as this affects our personal taxes and savings.
Here are some of the main proposals of this direct tax code - the Good, Bad and Ugly:
The Good
a) Tax slabs to be changed, now the lowest tax rate of 10% is applicable now for those who have income from 1.6 lakh to 10 lakh. So what it means is that those whose income was above 3 lakhs and were paying @ 20% now pay tax @ 10%.
b) Earlier, savings upto Rs.1 lakh could be deducted from the income. Now this is increased to 3 Lakhs, so what it means is you can invest upto 3 lakhs in approved savings schemes like fixed deposits, tax saving funds, NSC, PPF, etc and the entire amount can be deducted from your taxable income.
c) The tax rate for corporates to be reduced from 30% to 25%, which means lesser taxes for corporates, which will translate to savings - useful in these times of recession.
d) Securities Transaction Tax, which was applicable for all buying and sale of shares and selling of mutual fund units is scrapped. So no more STT.
The Bad
a) Earlier interesting on housing loans were exempt from purpose from tax calculation, now that is to be done away with. So what it means is the interest you pay for housing loans cannot be exempted and your tax burden increases.
b) Perks now will be included as a part of the income for purpose of tax calculation, so tax burden may be sightly more.
The Ugly
This is real uglyand will hurt the common man badly
a) Earlierwhen you sold off shares and mutual funds, the interest earned was taxable only if you sold within a year (short-term), but if you sold after an year it was taken as long-term capital gains and was thus exempt from tax. But now all capital gains will be taxed and will be counted as part of income. So, for those in the higher income group - you have to pay 30% tax on the interest you earn from sale of shares and mutual funds.
b) Earlier investments in provident fund, insurance, fixed deposits were under the EEE scheme, which meant the investment amount, interest and realised amount were exempted. But now the EETscheme is implemented. What it means is when you withdraw your provident fund amount or your insurance policy matures, the amount you receive is now taxable.So if you are getting say 30 lakhs from your PF account, the 30 lakhsyou get from your savings will be taxed at the highest percentage 30%.So you have to shell out 30% of your hard-earned savings to the crooks in Delhi. This is the most shocking part of the tax proposal and is the brain child of Chidambaram - who without doubt is the most anti-people finance minister this country had.
But the silver lining is that this is a draft code - suggestions have been invited from public. So you have a chance to write to Pranabda and tell him what you think of his plans. Hopefully the Govt. will listen and not implement the ugly part of this code.
