BJP Rajya Sabha leader Arun Jaitley says the direct tax code increases the tax liability of the middle-class. The Finance Minister, he added, assured that the tax proposal would be implemented post discussion.
Most finance ministers in the past gave direct tax reforms a miss, preferring discretion to valour, until P. Chidambaram took the bull by its horns and drafted a new code to replace the Income Tax Act of 1961. The new code is expected to simplify the tax procedures and adopt international best practices. But it could be tough on investors because their overall tax burden is likely to increase.
The biggest blow to investors is the removal of tax exemption for long-term capital gains. The code proposes abolishing the securities transaction tax of 0.25 percent, which by itself, would have been welcome. But the code also imposes capital gains tax on all gains made by selling shares, irrespective of the time they were held for. Thus it eliminates the distinction between short-term and long-term gains.
Earlier, gains from the sale of shares after one year were tax-free. Now they will be clubbed with your income and charged at the slab rates going up to 30 percent.