DIRECT TAX CODE BILL, 2009 was unveiled by our Hon. Finance Minister on 12th August 2009 and has been placed in the public domain for an analytical study and critical review of all its clauses. It seeks to consolidate and amend all the Laws relating to the Direct Taxes. It seeks to bring all Direct Taxes under one code for providing a single tax reporting system. It has been stated that the new code is drafted by taking into account the internationally accepted principles and their best practices to make it at par with world practises and not merely to replace the existing Income Tax Act of 1961.From the point of interest of our readers it has been decided to analyse the provisions of new code with respect to salaried persons, retired people and investors separately. In this process we have to compare the existing provisions of the present I.T.Act1961 to bring out the consequences of the new provisions. First we may consider the Income Tax Rates applicable for various income levels.

At present, income up to Rs.1,60,000/- is basic income level which is not taxable for all Individuals and HUF who are not resident women and senior citizen. As for as resident women are concerned the basic exemption level is Rs.1,90,000/- and for senior citizens Rs.2,40,000. The new code retains the same level of basic exemption for respective categories of tax payers, but the subsequent tax slabs for all of them have been raised as follows:

Type of Assessee

Basic exemption

10% Tax rate upto

20% Tax rate upto

30%Tax rate above

 PresentProposedPresentProposedPresentProposedPresentProposed         Individuals/ HUF

160000

160000

300000

1000000

500000

2500000

500000

2500000

Resident women

190000

190000

300000

1000000

500000

2500000

500000

2500000

Senior Citizens

240000

240000

300000

1000000

500000

2500000

500000

2500000

Even though everyone may be happy with the above enhanced limits for each tax slabs, the reason why the enhancement has not been given for the basic exemption levels is intriguing. A person with his present income, present tax liability and the expected saving in tax liability are given below:[For the Financial year 2009-10, for a male below the age of 65years and without Educational cess.]

Net Income level P.A. Present tax Tax as per new code saving in tax % of saving

175,000.00

1,500.00

1,500.00

0

250,000.00

9,000.00

9,000.00

0

350,000.00

24,000.00

19,000.00

5,000.00

20.83

450,000.00

44,000.00

29,000.00

15,000.00

34.1

550,000.00

69,000.00

39,000.00

30,000.00

43.48

750,000.00

1,29,000

59,000.00

70,000.00

54.26

950,000.00

1,89,000

79,000.00

1,10,000

58.2

1,100,000.00

2,37,000

1,04,000

1,33,000

56.12

1,500,000.00

3,54,000

1,84,000

1,70,000

48.02

2,500,000.00

6,54,000

3,84,000

2,70,000

41.28

3,000,000.00

8,04 000

5,34,000

2,70,000

33.58

5,000,000.00

14,04,000

11,34,000

2,70,000

19.23

From the above table it is clear that the tax rates prescribed by the new code will help saving in taxes only for higher income group and not for lower middle income group. It defeats all canons of taxation which always say that direct taxation is to be based on the principle of “what the traffic can bear” and the norms of taxation should be like “milking the cow and not sucking its blood”. While persons with income ranging from Rs.5,00,000 to Rs.10,00,000  save more than 50% in present tax burden, persons with income of less than Rs.3,00,000 save nothing due to rates. Not only this – they will be facing increased burden of taxes because of withdrawal of many deductions allowed to them from salary income like perquisites, Leave Travel Concessions, Medical Reimbursements etc. the effect of which we will be discussing in our next article. Even persons with income up to Rs.50,00,000 save on taxes nearly 20%. So the new code tax rates are more in favour of the rich then the middle income group.

Our suggestion is that basic exemption should also be raised to Rs.3,00,000/- which is the present ceiling for 10% slab. By this every one will gain including those within 3,00,000/-slab up to the level of tax payable for Rs.3,00,000/-. Further the basic exemption should be linked to “Cost of living index” so that it can be increased every year based on the inflation levels. Most of the time the increase in salary is linked to inflation and it is essential that such an increase should be protected from tax burden. We are not against the rich getting more benefit from tax savings. But middle income group should also get similar benefit.

Authored by: CA. N. VENKATESWARAN,  B.Sc.,FCA.,ACS.,CAIIB.,AMIMA , Email: nvenkat32@hotmail.com

More Under Income Tax

Posted Under

Category : Income Tax (24919)
Type : Articles (14004)

Leave a Reply

Your email address will not be published. Required fields are marked *