Thursday, September 2, 2010

Direct Tax Code: Watered Down Version

Direct Tax Code

Watered Down Version

 

In Nutshell

n     The Finance Ministry submitted the new Direct Tax Code Bill to the Parliament on August 30, 2010, offering much lower benefits than in the original proposal. The new code would now be applicable from April 1, 2012, instead of April 1, 2011, as earlier proposed by the finance minister.

n     Proposed bill which was supposed to be a simplified version, is infact much bulkier with 319 sections and 22 schedules against 298 sections and 14 schedules in existing IT Act.

n     While the original DTC proposed sweeping changes in the tax structure for individuals and corporates offering significant reduction in tax liability, the new bill is a watered down version with lesser benefits.

n     The proposed dividend distribution tax of 5% for both equity mutual funds (MFs) and unit linked insurance policies (ULIPs) is negative.

n     The long-term capital gains exemption on listed equities along with Securities transaction tax (STT) remains as it is. Short-term capital gains will be taxed at half the slab rate that is 5-10-15%, depending on individual tax slabs. This is positive for capital markets, as the original document proposed to eliminate distinction between the two and imposed tax on it as per individual tax slabs.

n     The new bill has retained most of the exemptions for income from employment and business in contrast to earlier document, which proposed to do away with most of the exemptions.

n     Tax benefit on the principal component of housing loans to discontinue, however benefit continues for the Interest repayment.

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