How new tax code and Budget could hit you

The New Direct Tax Code is proposed to be implemented from the year 2011. For its smooth implementation, changes in the present system have to be made on an on going basis.

The forthcoming Budget is expected to bring about some of the changes for a smoother transition.

Here we focus on the impact of the forthcoming Budget and the New Direct Tax code with respect to individuals only.

Personal income tax rates

The New Direct Tax Code talks of substantial increase in the tax slabs for an individual tax assessee. A part of this may be implemented in forthcoming Budget. The Tax Code Bill 2009 talks of increasing the 10 per cent slab to Rs 10 lakh (Rs 1 million), 20 per cent slab between Rs 10 lakh and Rs 25 lakh (Rs 2.5 million) and 30 per cent above Rs 25 lakh.

The difference between the current slabs and the New Direct Tax Code is very high. The gap may be bridged at least to the mid way or even slightly higher in this Budget. Click NEXT to check out impact on salary. . .

Perks to be part of salary

This will negate the increase in the tax slabs to some extent. The impact will be felt by all salaried persons as currently items like Leave Travel Allowance, House Rent Allowance and Medical Reimbursement can be tax free (or less taxed) if supporting expenses documents are provided.

This Budget may not make any sweeping changes in this area, as the New Direct Tax Code proposed taxable slabs may not be implemented in full.

Reduction in wealth tax

Currently wealth tax is at the rate of 1 per cent. This is proposed to be reduced to 0.25 per cent in the New Tax Code. This may be implemented immediately in the Budget.

The need of the hour is to increase the number of people who pay wealth tax. The current compliance is very less.

To better the compliance the slab for the wealth tax has been proposed to be increased to Rs 50 crore (Rs 500 million). This is a huge jump from the current Rs 30 lakh (Rs 3 million). Click NEXT to check out effect on 80C limit. . .

80C limit increase

It is proposed in the New Direct Tax Code to increase the 80C limit to Rs 3 lakh (Rs 300,000) from the current Rs 1 lakh (Rs 100,000). There may be a marginal increase in this limit in the current Budget.

The increase in limit is proposed to be applicable to individuals and HUFs (Hindu Unified Families).

EET (Exempt - Exempt - Tax)

The New Direct Tax Code talks of talks of going for EET for most of the favoured investment and savings avenues of Indians today. Life insurance, provident funds and superannuation are the schemes that will be affected.

The New Pension Scheme had at the time of launch itself been under the EET regime. Budget 2010 may include some of the others also in the EET scheme of taxation.

The benefit to investors, however, is given by the making the shifting of investment from one eligible scheme to another eligible scheme not taxable. Click NEXT to check change in capital gains. . .

Change in rate of capital gains

The New Direct Tax Code proposes to remove the concept of a separate Capital Gains Tax rate and tax capital gains at the applicable income rate itself. This concept may be implemented during this budget itself, incase the tax slabs are sufficiently raised.

Rent deduction reduction

In case of rental income 30 per cent was the deduction allowed for maintenance of the property. The New Direct Tax code plans to reduce this to 20 per cent.

Any service tax paid for receiving services related to the house property is deductible. This is a feature which is currently not available on any income for individuals.

The current Budget may implement the rent deduction reduction immediately. This will affect those who depend on rental income as their primary source of income.

However, the limit hike in the wealth tax and the service tax benefit will offset the increase in the rental income in a big way.