India's New Direct Tax Code Analysis – Nothing New about It

The Indian Government Cabinet today gave approval to a new Direct Tax Code which is supposed to fundamentally change the Tax Structure in the country.This Code which was unveiled last year with much fanfare as a panacea to India’s complicated taxation laws has diluted most of its changes.The simplification has been only cosmetic in nature as various exemptions and exceptions have been retained.The Government could not find the gumption to kill some of the holy cows like the tax exemption for interest paid on housing loans.Note India should have learnt from the US experience and abolished it,as it gives rise to wrong incentives and was a major reason for the US Housing Bubble.Here are some of the main features and changes in the Tax Code

1) The Government failed to  increase the Tax Slabs radically.As a result of this,the savings for salaried individuals won’t change much.Earlier the tax slabs for lower taxes were much larger.Earlier the government has proposed a tax rate of only 10% for income upto Rs 10 lakhs ( $22,200) and 20% for salary upto 25 lakhs ( ~$54,000).But now the government is going to start taxing at 20% from Rs 5 Laksh and 30% from 10 lakhs.So no major change for salaried individuals

2) The Direct Tax Code is proposing to not tax the retirement withdrawal in the EET manner.It has retained the EEE procedure which means that investment,accumulation and withdrawal of retirement plans will remain totally tax exempt.

3) Education and other cesses would be withdrawn.This is a good change,,however nothing radical as they were introduced a few years ago for a short term but kept on by a revenue hungry government

4) The Minimum Alternative Tax (MAT) will be raised from 18% to 20% thus negating the impact of reduction in Corporate Taxes through removal of cesses

New tax code: Hardly any savings for the salaried – Rediff

The new Direct Taxes Code Bill is likely to be passed in Parliament on Monday. What was initially proposed was so strikingly dynamic and was expected to introduce a sea change in the way taxation took place in the country.However, what was finally proposed to be sent to Parliament has been edited in so many ways that it did not translate to too much, feel most salaried taxpayers.However, the government has stressed that though in terms of savings there may not be a drastic change as proposed earlier, the New Direct Taxes Code will in several ways effectively replace the old tax system and offer a much simpler format in the collection of taxes.