New tax code: More or Less Taxes?
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With an objective to improve the efficiency and equity of the Indian Tax System by broadening the tax base through minimizing the exemptions, remove the ambiguity in the law and checking the erosion of the tax base through tax evasion, finance minister Mr. Pranab Mukherjee, released the draft of new direct taxes code to solicit the public opinion about the code before presenting it to parliament. He intends it to be effective from April 2011.
The code appears to be favoring salaried person in first instance. However, there are several points that are irritating to the salaried class.Main cause of concern is tax to be levied on withdrawals from the GPF/PPF/LIC schemes etc.Second concern is about the deduction of interest on loan taken for house construction. It appears that deduction on interest is not available if a person is living in his own house and showing no income from the house property. May be I could not understand the clause in its full sense.
How the provisions of draft direct tax code influence the income and how they influence the losses and gains in comparison to existing income tax rules, is shown below.
According to draft tax code, the gross salary will include the value of perquisites and profits in lieu of the salary. It will be reduced by the permissible deductions which include the following:
1. Professional tax paid
2. Transport allowance
3. Prescribed special allowance incurred in performance of duties to the extent actually incurred
4. Compensation under voluntary retirement scheme
5. Amount of gratuity
6. Commutation of pension
7. Pension received by the gallantry awardees
Deductions under item 4, 5 & 6 would be available to the extent the amounts are paid to or deposited in a retirement benefits account, After implementation of the code, amounts received from an approved retirement/superannuation fund will be taxable. Approved provident funds, superannuation funds, life insurer and New Pension System Trust etc will be the permitted savings intermediaries. Deposits will remain untaxed in these accounts but once withdrawals are made, the amount withdrawn will be treated as the income.
Salary will also include the following values as per new code:
1. The value of accommodation
2. The value of leave Travel Concession
3. The amount received on encashment of earned leave
4. Amount reimbursed for medical treatment
5. The value of medical treatment free or concessional by employer
Salary will include the income from House property. The following deductions are allowed from gross rent:
1. Amount of taxes levied by local administration (actual amount paid)
2. 20% of the gross rent as cost of repair or maintenance
3. Amount of any interest payable on capital borrowed
Important: If the gross rent is nil in the case of a self-occupied property, no deduction for taxes or interest will be allowed.
Tax incentives:
A. Deductions upto a limit of Rs 3.0 lakh will be allowed as per provisions of new code. These deductions will include the following items:
1. Approved provident funds, superannuation funds, life insurer and New Pension System Trust etc will be the permitted savings intermediaries.
2. Deduction for amount paid towards payment of tuition fees of children
B. Deduction of Rs 15000 (Rs 20,000 in case of a senior citizen) in respect of medical insurance premium + Rs 15000 for parent’s medical insurance premium (Rs 20,000 if parent is a senior citizen)
C. Deduction of Rs 50,000 (Rs 75,000 in case of severe disability) for medical treatment or maintenance of disabled dependent
D. Deduction of Rs 40,000 (Rs 60,000) in case of senior citizen) for expenditure on medical treatment for prescribed diseases
E. Deduction will be allowed for interest actually paid on a loan taken for higher education for self or children/spouse
F. Deduction allowed to a company for family welfare or AIDS prevention of its employees.
G. Deductions in respect to donations
Rate of income tax:
A. For individuals other than women & senior citizens: No tax upto Rs 1,60,000
For Women: No tax upto Rs 1,90,000
For senior citizens: No tax upto Rs 2,40,000
B. For individuals other than women & senior citizens: 10% tax ( Rs 1,60,001 to Rs 10,00,000)
For Women: 10% tax ( Rs 1,90,001 to Rs 10,00,000)
For senior citizens: 10% tax ( Rs2,40,001 to Rs 10,00,000)
C. For individuals other than women & senior citizens: 20% tax ( Rs 10, 00,001 to 25,00,000)
For Women: 20% tax ( Rs 10, 00,001 to 25,00,000)
For senior citizens: 20% tax ( Rs 10, 00,001 to 25,00,000)save
D. For individuals other than women & senior citizens: 30% tax ( Rs 25, 00,001 or more)
For Women: 30% tax ( Rs 25, 00,001 or more)
For senior citizens: 30% tax ( Rs 25, 00,001 or more)
Anyone interested to see the full text of Draft direct Tax Code and willing to rate it may click here.
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Comments
thanks kmadhav, purpose of publishing this hub is to attract people attention towards some provisions of this code. govt. also wants people to express their concern before placing it in parliament.
I have planned to save Rs. 3 Lac per annume in my PF account for a longer duration up to 2030 so I can get more then 1.5 Crore by 2030. Now I have to think twice because PF is a taxable.
You can withdraw your money from PF account on march 31, 2011. Don't deposit after this date in GPF otherwise amount withdrawn shall be taxable after March 2011.
20 per cent and 30 per cent Tax on Income are not advisable, as higher income groups may consider it painful to pay high taxes and there are chances that they may opt to evade taxes in one way or the other.
Well, Income Tax may be considered to be charged at a single flat rate of 10 per cent on total Gross Income as TDS just like a Service Tax only, the minimum.
However, for lower middle class/poor people, this 10 per cent Income Tax on total gross income may be borne by Employer and Employee in the following ratio:
Gross Income Employer : Employee
upto 50,000 Borne by Employer-Full
50,000 to 1 lac 3 : 1
lac to 1.5 lacs 2 : 2
1.5 lacs to 2 lacs 1 : 3
More than 2 lacs Borne by Employee-Full
The implementation of the above System of bearing the tax burden both by the Employer and Employees may be considered as an effective tool for reducing the tax liability on employees (individuals) and reduces the chances of evasion of Tax by Employers, as sometimes, employers show inflated/bogus/more salaries in their accounts to reflect less income or profits.
Moreover, Government may consider reduced/lower single slab Income Tax rates i.e. 2 per cent, 4 per cent, 6 per cent and 8 per cent on Total Gross Income upto Rs.50,000, Rs.1,00,000, Rs.1,50,000, Rs.2,00,000 respectively, in the form of TDS for lower income groups.
However, people below the poverty line may be given exemption of this 10 per cent Tax.
Incomes of All small firms, different businessmen, wholesalers, retailers, Actors, Musicians, etc. may be considered to be charged at a single flat rate of 10 per cent either it is 25 lacs or 50 lacs or more.
Spiritual organizations, Charitable Institutions, Clubs, Welfare Organizations etc. may be considered to be liable to Pay Tax at a single flat rate of 10 per cent on all incomes/donations/receipts.
Incomes from 1. Interest 2. Dividends 3. Short / Long Capital Gain 4. House Property may be considered to be charged at a single flat rate of 10 per cent as TDS just like a Service Tax. However, people below the poverty line may be given exemption of this 10 per cent Tax.
Initially, Income Tax of single flat rate of 10 per cent on total Gross Income as TDS may be considered to be applicable for employees of Government, Public Sector Undertakings and Public Limited Companies. Its scope may be further extended to Private Limited Companies, then small firms, then different businessmen, then wholesalers, then retailers and so on.
Wealth Tax may be considered to be abolished.
STT may be considered to be allowed to be continued and may not be considered to abolish the same.
When all the incomes are charged at a single flat rate of 10 per cent, then ultimately, the revenue from Income Tax shall definitely be manifold. Then there are chances of less Tax evasion, less burden of filing returns.
All investments and purchases should be free from any compulsion in liberalized economy and as such, all Tax Saving Investment Schemes may be considered to be abolished. People should decide its own priorities for purchases and investments with 90 per cent amount available at its disposal - after paying 10 per cent Income Tax. Then People shall have the option either to invest the savings or purchase some more items/things out of the savings. In both the cases, the Government will earn revenue either in the form of Tax on interests/Dividends or Tax on Excise/Sales Tax.
The implementation of this single flat rate of 10 per cent Tax on Total Gross Income may be considered to be an effective tool for overcoming recession and will definitively increase production, employment opportunities and investments, in addition to reduction of black-money, un-accounted income and tax evasion.
With regards
Bobby
Dear bobby your suggestions are really good but in most of the cases Govt. is employer. Why they will opt to bear 50% tax burden? Instead of sharing they would like to hear about the tax plans that can boost their revenue collection.
Well Mr. Premsingh, Government would have no hesitation in bearing 50% tax, as it is only the book adjustment from one Government account to the other government account.
Generally, it is seen that employers show inflated/more salaries in their accounts to show less income or profit. It is seen in the case of private school teachers, where less salaries are given and acknowledgment of more salary is obtained from the employees/teachers. The step in single slab of 10% and bearing the burden both by the employer and employee shall definitely reduce the chances of tax evasion and result in more revenue of the Government.
With regards
Bobby
You are right, bobby. If one sees whole thing from this perspective then new code tax may be beneficial to such employees who are getting less salaries than they are signing as received.
realy well researched hub thanks
thanks Lgali, it's nice to hear such encouraging words from a fellow hubber.
Kmadhav says:
4 months ago
I saw this news on television last night. This is a good step to stop black money, ambiguity of tax structure. Some concerns you wrote in hub is quite understandable. Govt. Should also consider this thing.
Very good Hub on this Direct Taxes.