A maturing market amid the mayhem
Are you happy with the direct tax code?
Though these slabs will put some extra money in taxpayers’ pockets as compared to existing slabs, the original slabs proposed in the first draft of the direct tax code have been diluted.
The original code proposed that income up to 10,00,000 rupees would be taxed at the rate of 10 percent, but the tax slabs announced on Thursday propose a tax of 20 percent for income between 500,000 – 10,00,000 rupees and a tax of 10 percent on income between 200,000 – 500,000 rupees.
The new proposal exempts income up to 200,000 rupees from taxes. For senior citizens, the basic exemption would be hiked to 250,000 rupees.
(Direct Tax Code Bill – Changes in personal taxation, click here)
The other good news is that investments like PF and PPF would continue to be treated as per EEE (exempt-exempt-exempt) method, meaning you will not have to pay any tax at the time of redemption.
The initial proposals recommended that such investments be treated under EET method, meaning they would have been taxed at redemption.
Those who have a home loan also have reason to cheer, as the interest exemption would continue for up to 150,000 rupees annually.
But the revised direct tax code was silent on the HRA (house rent allowance) exemption claimed by individuals staying in rented accommodation.
If this exemption is no longer available, it may force employers to consider providing rent-free accommodation rather than HRA, which keeping in view the perquisite rules may be more tax-friendly, according to a media report.
People would also need to get used to new ways of saving tax, especially those who invest in ULIPs and tax-saving mutual funds (ELSS), as these would no longer be available for exemption once the new code comes into affect.
Are you happy with the new changes proposed in the direct tax code? What suggestions would you want to make?
(UPDATE: The direct tax code bill was tabled in parliament on August 30, 2010. The new code will be applicable from April 1, 2012, instead of next year as proposed earlier by the finance minister)