New Delhi: The government, on Wednesday, introduced a new direct tax code that seeks to simplify the tax regime in India. This was a much-awaited proposal as the government currently computes taxes based on the Income Tax Act 1961.
This code (Read:Direct Taxes Code full text) is expected to replace the existing income tax laws.
The main proposals of the new code are as follows:
- Slash income tax rates
- Most exemptions to go
- Interest on savings to be taxed
- Up to Rs 1.6 lakh: No tax
- 10 per cent tax for Rs 10 lakh income (Rs 1.2 lakh in hand)
- 20 per cent tax for Rs 25 lakh income (Rs 2.60 lakh more in hand)
- 30 per cent tax for income over Rs 25 lakh
- To raise deduction limits for savings upto Rs 3,00,000
- Corporate Tax: Down from 30 per cent to 25 per cent
- Wealth tax to be levied for wealth above Rs 50 crore
However, there is a catch. According to the new proposals, all interest on savings will be taxed from 2011 onwards.
Former finance minister and now home minister, P Chidambaram, who had initiated work on the proposed code during his tenure, said the direct tax code was outdated and it needed a revamp.
The direct tax code would replace the Income Tax Act 1961, Chidambaram said. Adding that the new direct tax code would become a law only by 2011, Chidambaram said the new tax code would be a vast improvement over I-T Act 1961.
Finance Minister Pranab Mukherjee said tax reform was a process, not an event. To moderate tax rate and simplify tax laws, all direct taxes including FBT and income tax would be brought under one code, he said.
The new code was aimed at eliminating the scope of litigation as far as possible, Mukherjee said, adding that the government would have informed discussions with stakeholders on the tax code.