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Are you happy with the direct tax code?

August 27, 2010

The much-awaited direct tax code bill, aimed at simplifying the country’s archaic direct tax laws, was passed by the cabinet on Thursday, with new income tax slabs being proposed for individuals.

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)


Tax code are never balanced. Either they tilt towars tax collector or payer. To arrive at a balance tax code, one has to put in a lot of selfless hard work and you dont find such peaople in today’s world (At least not at the policy making positions). Varying the basic monetory exemption or shuffling the HRA exemption is not that can be termed as new code.

Posted by taxwise | Report as abusive

HRA exemption for Rented appratment should be continued for salaried people.

Posted by Joydeep | Report as abusive

Unfortunately FM has overlooked senior citizens wows,heavy proportion of their interest income is spent on medical expenditure & present nuclier family they are left to fend them self by have saved money for there old days.They should have been spared by FM by giving substantial Tax Benefits,Examptions from TDS,filling returns by declaring their asset once for all. unfortunately no one is taking interest for cause of senior citizens.
Dilip Hate

Posted by Dilipji | Report as abusive

It is good that only pure insurance policies will be given tax excemption. Investment plans should not be treated at par with pure insurance policies…… However I think Senior citizens should have been given higher tax breaks…

Posted by vik123 | Report as abusive

HRA is one of the main benefits of existing tax system.
If this taken away every one will think about buying house. This will benefit real estate/banks. But what is the benefit for country?

Posted by chennaiuser | Report as abusive

Insurance and Mutual funds sectors are going to impact very aggressively, as the deductions available under Section 80 C wont stay as per the new tax code. People have to look for many other avenues to plan out their tax savings.

Also, there will a great impact on fresh Finance graduates who will be looking out for jobs in Insurance and Mutual funds sector. It seems that this sectors will be affected the most and hiring new people is something which they might not wish to get in.

Posted by PratikAsnani | Report as abusive

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