Finance minister Pranab Mukherjee along with his predecessor P.Chidambaram released a new Income Tax Code in New Delhi on 12th Aug’09, which seeks to simplify and replace the 48-years-old Income Tax Act 1961. The most salient features of this code are that it boosts savings greatly and highly simplifies tax calculation procedures.
Putting the code in public domain for discussion, the finance minister said, “It is a simpler tax code and we expect it will usher in better compliance, better tax realization and lead to far less litigation.”
Chidambaram, on the other hand said that he started the work on this new tax code three years back and it is written from scratch. It could be enacted by 2011 synchronizing with the Golden Jubilee of Income Tax Act 1961.
In case of ‘Individuals’ the new code envisages a tax exemption on Rs.300000/- (from the present Rs.100000/-) if invested in certain specified savings instruments like bank fixed deposit, life insurance premium, post office small savings scheme etc. Apart from this, the tax slabs too has been recast. An individual having annual taxable income between Rs.160000/- and 1000000/- will be charged tax @ 10% while taxable income above Rs.1000000/- but up to Rs.2500000/- would be charged @20%. For income above Rs.2500000/- tax would be payable @30%.
The tax savings are quite handsome across the board. Individuals having Annual taxable incomes of Rs.500000/- would save Rs.20000/- in taxes while those having taxable income of Rs.1000000/- would save Rs.140000/- tax savings. For persons having taxable income of Rs.3000000/- the saving would be a phenomenal Rs. 450000/-, which would buy him a decent car in one year’s tax savings only.
Although it is claimed by the finance minister that the new code would usher in far less litigation, but the clause on valuation of property clearly shows that procedure adopted in property valuation would put rent earners in trouble and a lot of litigation would arise out of this clause.
A detailed discussion on the new code is out of the ambit of this platform. But simply speaking, an individual having a gross total income of about rupees forty thousand per month will not have to pay any income tax. The vast majority of salaried and middle class of the country falling within this income bracket would definitely thank both Mr. Mukherjee and Mr.Chidambaram for freeing them from the shackles of Income tax.
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