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Not the common man's tax code!
August, 14th 2009

Amar Bhatt, a middle class employee earning monthly salary of Rs 40,000 (annual Rs 4,80,000), currently manages to maintain a zero tax status by availing tax-free LTC & medical perks of Rs 70,000, deduction of interest on housing loan of Rs 1,50,000 and repayment of such loan of Rs 1,00,000 eligible for deduction u/s.80C.

He is bound to be shocked when he gets to know that with the elimination of the exempt perks and scrapping of housing deductions as proposed under the new Direct Tax Code, his taxable income of Rs 4,80,000 will attract a straight tax of Rs 32,000.

Chintan Shah, a top notch executive currently returning annual taxable income of Rs 25 lakh and paying Income-Tax of Rs 6,54,000 thereon, will party for sure when he learns that he will reap a whopping tax saving of Rs 2,70,000, since he will pay only Rs 3,84,000 on the proposed new tax rates coming into effect.

Quite ironically, the finance minister has in his foreword to the new Direct Tax Code (DTC), to be implemented from April 2011, quoted that, "the trust

of the code is to improve the efficiency and the equity of our tax system by eliminating distortions in the tax structure."

The above two illustrations clearly go to a defeat the logic of equity advocated by the FM.

The FM has lost sight of the plight of the common taxpayer, your own 'Aam Aadmi'. Almost all small taxpayers earning up to Rs 3 lakh are likely to suffer quite harsh on account of the abolition of various tax concessions currently enjoyed by them, with no corresponding relief in the applicable tax rate of 10%.

Even those in the current tax bracket of 20%, earning income between Rs 3 to 5 lakh, are likely to be adversely impacted on account of the scrapping of a number of exempt perks, deduction for housing interest and loan repayments.

Although the revised limit for eligible savings (the list of which now stands truncated) may have been raised to Rs 3 lakh in comparison to the current Rs 1 lakh u/s.80C, investors are now bound to lose their smile when they will be called upon to pay tax on withdrawals under the proposed EET regime.

Retirements should be relaxing. However, DTC will make them taxing.

The terminal benefits such as VRS, gratuity, commutation of pension and superannuation of the retiring salaried will no longer enjoy the current tax shelter and will get eroded as soon as they are withdrawn from the designated accounts in which they will be required to be deposited.

 
 
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