Direct Tax Code (DTC) (proposed)

The new Direct Tax code is expected to be effective from April 2012 which will replace the archaic Income Tax Act and simplify the whole direct tax regime in the country. The Code aims at reducing tax rates, but expanding the tax base by minimising exemptions.

The Indian Government had signalled its intention to consolidate and comprehensively amend the existing Income Tax Act 1961 and Wealth Tax Act 1957 through a single legislation, by releasing a draft Direct Taxes Code (DTC) and a discussion paper for public comments in August 2009. Based on analysis of the numerous inputs received from stakeholders, a revised discussion paper was released in June 2010 followed by the introduction of the Direct Taxes Code Bill, 2010 in Parliament in August 2010. It has now been proposed to make it effective from 1 April 2012.

The direct tax code seeks to consolidate and amend the law relating to all direct taxes, namely, income-tax, dividend distribution tax, and wealth-tax so as to establish an economically efficient, effective and equitable direct tax system which will facilitate voluntary compliance and help increase the tax-GDP ratio. Another objective is to reduce the scope for disputes and minimize litigation. The new provisions under the Direct Tax Code shall be as follows:

• Tax for income between Rs. 2 lakh – Rs. 5 lakh: 10%
• Tax for income between Rs. 5 lakh – Rs. 10 lakh: 20%
• Tax for income over Rs. 10 lakh: 30%

Corporate tax has been retained at 30%.

The limit for exemptions for salaried people is Rs. 2 lakh, while that for senior citizens is Rs. 2.5 lakh.