New tax code: Hardly any savings for the salaried

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.

Also, the earlier proposal of introducing taxation upon withdrawal (EET) instead of the existing tax free (EEE) status for certain instruments like Public Provident Fund, etc had earlier been withdrawn in a revision.

If that were to be implemented, perhaps, the tax slabs could have led to dramatic savings for all the individuals in different tax brackets. So there have been adjustments all around to create a balance in accumulating government revenues from tax.

Let's take a quick look at how the salaried class will be affected post the implementation of the New Direct Taxes Code in its latest avatar.

New Direct Taxes Code slabs

For men

Rs 2 lakh (Rs 200,000) to Rs 5 lakh (Rs 500,000) ----- 10%

Rs 500,000 to Rs 10 lakh (Rs 1 milion) -----                     20%

Above Rs 10 lakh ------                                                           30%

Slab 1: Total income is lesser than Rs 200,000

The income tax for the above slab is proposed to be nil. Earlier, this was restricted to individuals earning below Rs 1.6 lakh (Rs 160,000).

Slab 2: Income is between 200,001 and Rs 500,000

The tax for the above slab is proposed to be 10 per cent of the amount by which the total income exceeds Rs 200,000. Meaning, if your income is Rs 472,000, then the income tax would be 10 per cent of (Rs 472,000- 200,000). This brings cheer for individuals earning between Rs 3 lakh and Rs 5 lakh, as they straight away save 10 per cent of any income that exceeds Rs 3 lakh (Rs 300,000), but is lesser than Rs 5 lakh. Today they have to pay 20 per cent on this amount!

So if your income is, say, Rs 4 lakh (Rs 400,000), then your tax savings would roughly work out to Rs 7,000 once the new DTC is implemented.

Slab 3: Income is between 500,001 and Rs 10 lakh

The code proposes the income tax for this slab to be Rs 30,000 (10 per cent of Rs 300,000), plus 20 per cent of any amount above Rs 500,001 but lesser than Rs 10,00,000.

So, for instance, if you are earning Rs 7 lakh (Rs 700,000), your tax savings post the new DTC will be roughly around Rs 10,000.

If you are earning exactly Rs 10 lakh, you can approximately save around Rs 18,500 compared to the current tax outgo.

Slab 4: Income exceeds Rs 10 lakh

The code proposes the income tax for this slab to be Rs 130,000, plus 30% of any amount exceeding Rs 10 lakh.

The maximum tax saving to be had if the earlier proposal was implemented would have worked out to a super save of around Rs 200,000, while currently this would only work out to around Rs 26,000 in a financial year for a woman earning a little above Rs 10 lakh.

Senior citizens and women will enjoy a higher exemption of up to 2.5 lakh (Rs 250,000). Currently, the exemption limit is Rs 190,000 for women and Rs 240,000 for Senior Citizens.

Also, there will be no surcharge or cess on companies, thereby bringing the corporate tax rate to 30 per cent from the current 34 per cent. Also, this will be uniform across, both, foreign and domestic companies.