New tax code to make you richer by up to Rs 41,040!

The Direct Tax Code Bill, which was tabled in the Lok Sabha on Monday, has been delayed by a year. The Bill will now come into effect from April 1, 2012.

The Bill proposes to raise the exemption limit on income tax from the current Rs 160,000 to Rs 200,000. Introduced by Finance Minister Pranab Mukherjee, the Bill seeks to widen income tax slabs to levy 10 per cent rate on income between Rs 200,000 and Rs 500,000, 20 per cent on between Rs 500,000-10 lakh and 30 per cent above Rs 10 lakh (Rs 1 million).

For senior citizens, tax exemption is sought to be raised to Rs 250,000 from Rs 240,000. Currently, income between Rs 160,000 and Rs 500,000 attracts 10 per cent tax; between Rs 500,000 and Rs 800,000, 20 per cent and beyond Rs 800,000, 30 per cent.

Savings of up to Rs 14,040!

People earning more than Rs 10 lakh a year may save up to Rs 41,040 in income tax, if slabs proposed by the Direct Taxes Code Bill come into effect, experts said.

Similarly, tax burden would reduce by Rs 21,540 for those earning annual income between Rs 5 lakh (Rs 500,000) and Rs 10 lakh (Rs 1 million), while those making Rs 2 lakh (Rs 200,000) to 5 lakh could be richer by Rs 7,660, Deloitte Haskins & Sells partner Neeru Ahuja said.

According to the bill presented in the Lok Sabha on Monday, income from Rs 2-5 lakh is likely to attract tax rate of 10 per cent; 20 per cent in the Rs 5-10 lakh bracket and 30 per cent above Rs 10 lakh.

At present, income between Rs 1.60 lakh (Rs 160,000) and Rs 5 lakh attracts 10 per cent tax, while the rate is 20 per cent for the Rs 5 lakh to Rs 8 lakh (Rs 800,000) bracket and 30 per cent for above Rs 8 lakh.

The Bill proposes to raise income tax exemption limit to Rs 2 lakh from the current Rs 1.60 lakh.

"For the individuals, DTC tax slabs are certainly beneficial. Their tax liabilities will go down," DSK Legal partner Balbir Singh Mastan said.

For senior citizens, exemption limit is proposed to be raised to Rs 2.5 lakh (Rs 250,000) from Rs 2.40 lakh (Rs 240,000).

Individuals over 65 years, or senior citizens, could see tax burden lessen by Rs 4,420, if they earn Rs 5 lakh a year, while those earning Rs 10 lakh will save Rs 18,300 tax.

Senior citizens earning Rs 15 lakh (Rs 1.5 million) annually could save Rs 37,800 in case the Bill is enacted.

The proposed tax slabs are much lower than originally suggested in the draft DTC Bill -- 10 per cent for Rs 160,000 to Rs 10 lakh, 20 per cent between Rs 10-25 lakh (Rs 1-2.5 million) and 30 per cent for income above Rs 30 lakh (Rs 3 million).

The Bill seeks to fix corporate tax at the current 30 per cent but without surcharge and cess. With surcharge and cess, the current tax liability on corporates comes to over 33 per cent.

The legislation also proposes to increase MAT from 18 per cent to 20 per cent of book profit of a company. It seeks to levy dividend distribution tax at 15 per cent.

Income on non-profit organisations, exceeding Rs 100,000, is proposed to be taxed at 15 per cent.

When enacted, DTC will replace archaic Income Tax Act.