The draft of the Direct Taxes Code bill 2009 and the Discussion paper have been made public recently. The Code proposes to create 4 slabs for the sake of income tax calculations.
Slab 1: Total income is lesser than Rs 1, 60,000/- : income tax = nil.
Slab 2: Income is between 1, 60,001/- and Rs 10, 00,000/-
This is the most drastic change proposed. The tax for the above slab is proposed to be 10 percent of the amount by which the total income exceeds 1, 60,000/-. Meaning, if your income is 5, 72,000/- then, the income tax would be 10% of (Rs 5, 72,000-Rs 1, 60,000/-).
Example: Ram's income today is Rs 7, 00,000/-
Income tax as per present rates = 1, 18,450 (excluding surcharges and any cess)Income if new code comes into effect=54,000/- a saving of Rs 61000/- .
Slab 3: Income is between 10,00,001 and 25,00,000
The code proposes the income tax for this slab to be Rs 84,000/- (10% of 8,40,000/-) plus 20% of any amount above 10,00,001 but lesser than 25,00,000. This would also bring about happy tidings for people who are currently earning above 10 lakh as they save around Rs 1,00,000/- plus 10 percent of any income which exceeds 10,00,000/- .
Slab 4: Income exceeds 25,00,000/-
The code proposes the income tax for this slab to be Rs 3,84,000/- plus 30% of any amount exceeding Rs 25,00,000/-. People currently earning above 25,00,000 would expect savings of over 40% of their current tax liabilities.
Away with terminology of "assessment and previous year"
in old terminology, "previous year" means the year in which you earned the money and "assessment year" means the year in which you pay the self assessment tax and file your return.
The new proposal is to use the simpler terminology of Financial Year (FY). For example if you earned income in FY09-10 then, your pay advance tax in FY09-10 and any balance tax and returns in FY10-11.
Source of income defined:
The income is proposed to be bifurcated into "special sources" and "ordinary sources". The special sources include items like lotteries, games and non residents etc which will be charged on the basis of a rate schedule.
What is a scrutiny?
Typically what happens is a scrutiny notice is served within a one year time frame from the end of the month during which you have filed your returns. Suppose you have filed your returns in the month of May 31, 2009 you may get a notice anytime on or before May 31, 2010.
TAX SAVING Investments :
Public Provident Fund (PPF)- Given its safety (its government backed) with relatively high returns (currently 8 % p. a. compounded annually) and tax exemptions on its interest earnings and the final corpus; its effective post-tax return currently works out to above 11.57% (for someone paying 30.9% tax).
Unit Linked Insurance Plans (ULIPS) : Tax benefits
Investments qualify under Section 80C of the Income Tax Act. Maturity proceeds from ULIPs are tax free.
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