The Standing Committee of Finance is proposing to replace the existing Income Tax Act of 1961 with the Direct Tax Code.DTC was tabled on Parliament on 30th August 2010.
What is Direct Tax Code: Its a new taxing scheme with major tax relief and some removal of Tax Exemption. It is expected to Bring Transparency and Compliance.
When archaic rules have to be replaced with new ones, the changes must be dramatic and path breaking. This is what Union Finance Minister Pranab Mukherjee conveyed to all taxpayers when he introduced the draft Direct Tax Code (Tax Code).
If passed, it will become the new Income Tax Act, replacing the existing four decade old IT Act of 1961. The new IT Act will come into force from April 1, 2011.
DTC Proposal on Personal Tax :
a) Increase the Current tax exemption to 3 Lakh on 80c saving of IT Act. Currently it is at 1 Lakh .The catch, however, is that a few long term investments like public provident fund, employer’s provident fund, insurance premium in pension (annuity) schemes, Post Office National Savings Scheme etc will be eligible for tax exemption.
But contributions to fixed deposits, interest and principal payment on housing loans, educational expenses of dependents, and a host of other forms of savings will not qualify as eligible for tax savings
b)Changes in the taxation slabs:
10 % tax on : 1.6Lakh to 10 Lakh
20% tax on :10 Lakh to 25 Lakh
30% tax on: 25 lakh and above
Present Tax Slab:
10% tax on: 1.6 Lakh to 3 Lakh
20% tax on: 3Lakh to 5 Lakh
30% tax on: 5 lakh and above
but along with that it allows allowances like leave travel, furnishings, entertainment expenses, conveyance, medical etc, to be included in taxable income.
Similarly, the tax treatment for post-retirement benefits may prove to be a major dampener. Money saved in specified instruments like PPF and PF for getting tax exemption will become taxable when they are withdrawn later.
Reason to Introduce this tax law: As India is growing ,so as the people eligible for tax also growing. So to help this new force of small tax payers a simplied version of IT law in form of Direct Tax Code. This will also increase the base of the tax payers and eliminate distortions in the tax structure, introduce moderate levels of taxation, improve tax compliance, simplify the language and lower tax litigations.
Current Status of DTC:
The Standing Committee on Finance chaired by senior BJP leader Yashwant Sinha considered the draft of the report on the proposed Bill at its meeting. The entire report needs to be discussed and the committee members felt that they should meet again before adopting the report,” sources said. Accordingly, it was decided that the Committee will meet again on February 17, 24 and March 2, they added.