Our finance minister, Mr. Pranab Mukherjee released the draft of the long awaited Direct tax code to be implemented from year 2011 on Wednesday,12th August,2009 . The new tax code represent a radical review of the Income-Tax Act, 1961 which is in operation right now. It marks a paradigm shift in the Tax structure of our country.
Taxes serve the main objective of financing government expenditure. There used to be a time when there were 11 different tax-rates depending on the income of an individual. The rates used to be as high as 97.75% of the total income of an individual. Naturally, most of the people tried to evade taxes. Even now, when the tax structure has been eased a lot, people try to evade taxes. Now consider the situation, after this tax code will be implemented-The tax rate for people having income from 1.6 lakh-10 lakh is only 10% which means that majority of Indians will be paying only 1/10th of their earnings. So the basic motive behind changing the existing tax structure is to simplify the tax procedures by introducing moderate level of taxation and expanding the tax base.
The tax rate slabs have been expanded with an assumption that more people will be encouraged to pay taxes now. Prima facie, tax structure looks to be quite impressive-The slabs for individuals have been drastically changed. It proposes to tax incomes up to Rs 10 lakh at 10%, that between Rs 10 lakh and Rs 25 lakh at 20% and sum in excess of that at 30% which is in sharp contrast to complicated tax structure applicable now-a-days. For someone earning say, Rs 14.5 lakh per year, the new numbers could look something like this: Rs 1.6 lakh (basic exemption) Rs 3 lakh (saving) Rs 9.90 lakh taxable income, tax rate for Rs 10 lakh = 10 per cent Tax liability = Rs 99,000. Looks brilliant, but the tricky part lies in the fact that all the perks that an employee used to enjoy in his salary will now be brought under the tax net. This means the taxable income will now be higher. But on the whole, new tax structure stands to benefit middle-class.
One good news for students pursuing higher education through loans is that the term ‘higher education’ has been enlarged to include full-time studies in graduate or postgraduate course for the purpose of deductions under savings. Also, there will be no more any confusion between AY(Assessment Year) and PY(Previous Year), now only FY, i.e financial year will be used. The tax draft has also tried to make the corporate sector happy. The tax rate on profits of the company has also been decreased from 30% to 25%.
The new tax structure basically aims at encouraging the idea of savings among people and at the same time leaving more disposable income in hands of people for the purpose of increasing consumption in the times of recession. Apart from this, the new tax code also tries to reduce the incidence of tax avoidance. It has incorporated a whole chapter on provisions to prevent tax-evasions. Taking into account all these, the new tax code looks to be a well-structured, comprehensive and better tax structure that was much needed in India’s quest to be a developed nation. The only thing to be seen now is how successfully will this new tax structure be implemented and adopted by government and people of our country.
Contributed By:
Arun Singhal
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