Individuals will not be eligible for tax deductions for fixed deposits and equity-linked tax

RELATED ARTICLES Budget may bring more services in tax net Withdraw customs duty, countervailing tax on coal imports Vodafone says India tax victory boosts IPO chances Don't raise taxes in budget; CII to govt Tax on diesel vehicles will stigmatise technology: SIAM

savings schemes (ELSS) from April 1, 2012 when the new direct tax code becomes operative.

This is part of an overhaul proposed in the way taxes are levied on individuals and companies. In the new bill to replace the Income-tax Act, individuals can claim deduction up to Rs 1 lakh only on investments in provident fund, super-annuation fund, gratuity fund and pension fund.

Men and women will be treated equally in the matter of tax computation. Both will have the same tax exemption limit of Rs 2 lakh. With this the preferential tax treatment to women will end.

The direct tax code bill introduced in the Lok Sabha on Monday by finance minister Pranab Mukherjee allows higher exemption for senior citizens at Rs 2.5 lakh. Those aged above 65 years till now enjoyed an exemption of Rs 2.4 lakh.

The tax slabs have been brought into the code schedule, making it simpler for individuals to do their tax planning. Those earning Rs 2 lakh to Rs 5 lakh annually will be taxed at 10 per cent. Individuals with income between Rs 5 lakh and Rs 10 lakh will fall in 20 per cent tax bracket. Those higher incomes will be taxed at 30 per cent. The bill provides for tax deduction on spending up to Rs 3 lakh annually. These expenses will be on specified heads.

This includes Rs 1 lakh on the four long-term savings avenues; deduction on another Rs 50,000 will be allowed on expenses of tuition fees of children, pure life insurance and health insurance policy premiums.

The deduction of Rs 1.5 lakh interest payment on home loans taken by individuals will continue. This has been a demand of the realty sector.

Corporate tax for both domestic and foreign companies will be set at 30 per cent. But branch profits of foreign companies will be taxed in lieu of 15 per cent the dividend distribution tax levied on domestic companies. Industry bodies like Ficci, Assocham and CII said that it fell short of their expectation of a 25 per cent limit.

The noise made by special economic zone (SEZ) developers and those having factories in the zones seem to have been heard. Thus profit-linked tax deductions for those SEZs notified before March 31, 2012 will continue. These incentives will be available for companies that have set up units in these zones and become operational before March 31, 2014.

The code proposes a revamp in capital gains tax for individuals. Those holding shares of listed companies for more than a year need not pay any tax. Those holding shares for less than a year will have to pay tax on 50 per cent of the gains. Effectively, it reduces the tax liability on investors.

The new taxation proposals will result in a revenue loss of Rs 53,000 crore during 2012-13. “Had the code not been introduced, the collection would have been Rs 5,80,000 crore. But after the code the government will lose around Rs 53,000 crore. Therefore, the collection level will stand at Rs 5,27,000 crore. We hope to recover the amount with buoyancy in tax collection,” Sunil Mitra, revenue secretary, told newsmen.

On the delay in starting the code, Mitra said that it would give companies and individuals enough time to prepare for the switchover from the Income- Tax Act. He said 96 per cent of Indian taxpayers would benefit from the changes.

With the bill tabled, at least the stock market’s uncertainties over a feared a resumption of long- term capital gains tax and the implementation schedule of the new code are over.

The foundation of the long-term bull run which the market had seen after 2004 were laid in the first budget of the UPA government when long- term capital gains tax on stocks held for more than one year was removed.

This gave an incentive to people to hold stocks for more than one year and that wass the time when long- term investing become popular in India and indices scaled new highs.

There were fears on the street after some reports suggested that the new code would bring back the tax with some indexation benefit to investors who held the stock for more than a year.

This would have in a way be a disincentive to investors to hold stock and they would have been tempted to trade more frequently rather than stay invested for long.

Had the code been implemented from April next year, it would have spurred selling by long-term investors liquidating their position ahead of the financial year 2011-12 to avoid paying long-term capital gains tax.

So over next few months at least selling pressure in the market is unlikely. This will help the market react more in line what happens to the global economic scenario.