The long-awaited Direct Taxes Code 2009 is finally here. Finance Minister, Pranab Mukherjee released the draft of the Direct Taxes Code 2009 (DTC 2009) for discussion and debate after which the final Code will replace the IT Act, 1961 with effect from April 1, 2011.
The draft proposes drastic changes in personal taxation and tax administration. It seeks to simplify the tax structure by doing away with plethora of tax exemptions, ushering in modern levels of taxation, improving the efficiency and equity of the tax system by eliminating distortions and expanding the tax base. It begins the simplification process by removing the confusion about ‘assessment year’ and ‘previous year’ (which confused the tax payers about the year for which the returns were being filed) by replacing them with the unified concept of ‘financial year’.
The DTC 2009 has many advantages. The massive increase in income tax slabs was totally unexpected and created a huge buzz among individual tax payers. An individual tax payer drawing an annual salary of Rs 6 lakh is presently liable to pay Rs 84,000 as tax, while his tax liability under the new code would be just 44,000. That is straightaway reduction in tax liability of Rs 40,000 and that too without availing any tax exemptions. Also actual tution fees paid school, college or university in India for the purpose of full-time education of two children during the financial year would be eligible for deduction under Section 67 of the DTC 2009. Such full-time education would also include play schooling. However, it would not include any payment made towards development fees or donation. Another advantage of the DTC 2009 is that the health insurance premium paid by an individual for insuring his own health would be eligible for deduction under Section 69 of DTC 2009, subject to a maximum of Rs 15,000 per annum (Rs 20,000 for senior citizens). In the case of medical treatment, the actual amount paid for treatment of specified diseases during the financial year would be eligible for deduction under Section 70 of DTC 2009, subject to a maximum of Rs 40,000 (Rs 60,000 for senior citizens). The DTC 2009 has another good clause. The super rich having wealth in excess of Rs 50 crore would have to pay wealth tax, while others having wealth less than Rs 50 crore would be spared the burden.