New Draft Income Tax Code

I'm not quite sure whether we bhalo bashi the FM or not. One wouldn't go so far as to call this a "daft" income tax code, but it's rather nasty. It starts off looking rather nice, but ends up decidedly less pleasant in some aspects.

Salient points

• Valid from FY-2010-11 onwards (AY 2011-12, but the AY term is not in the draft anymore)
• Tax rates, limits and exemptions are now in the law, not announced in the budget yearly as they are now.
• The language of the proposed statute is allegedly simpler than the one it replaces.

The good:

• Less "basic" income tax (1.6L - 10L - 10%, 10-25L - 20%, 25L+ - 30%). Someone earning 25L would end up paying 2.8L less as tax. Watch out for the sting in the tail below with cap gains, though. Depending on how much you churn your portfolio, that 2.8L could be eaten up really fast.
• Increased investment allowance (3 Lakhs). But again, there's a sting in the tail.
• Wealth tax limit raised to 50Cr, but exemptions removed.

The bad:

• Capital gains is taxed at marginal income rates (long term too! Goodbye zero tax on stock market gains. Dividend options of Mutual Funds look attractive again.).
• EET on PF. This means you pay tax on money withdrawn from PF! Thankfully, it applies only to interest accrued and money invested from Apr 2011 onwards
• No interest exemption for home loans.Again, that eats up part of the increased investment allowance.
• All perks are taxed. One hopes there will be exemptions for at least some basic stuff.

The Ugly

• Full text of the draft , if you are in the mood for some reading pleasure.

Interestingly, the corporate tax rate has been cut to 25%. This means individual marginal tax rate is more than that of corporations. Not good, Pranab Da, cholbe na. Whatever happened to progressive taxation, why is the individual being burdened more than a company?

What the left hand giveth, the right taketh away.