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In tune with new demographics

The direct tax code aims to reduce the challenges faced by the common man in understanding the tax structure and tries to simplify issues which have become complicated over a period of time, prone to litigations and disputes.

india Updated: Aug 13, 2009 22:13 IST

The direct tax code aims to reduce the challenges faced by the common man in understanding the tax structure and tries to simplify issues which have become complicated over a period of time, prone to litigations and disputes.

Besides, a very important purpose was to make it in tune to the current market dynamics.

And to the credit of the finance ministry team, including former finance minister P Chidambaram, it has done a commendable job. The sweeping changes proposed in the draft aims to completely revamp the tax structure.

The proposed increase in income tax slabs as well as wealth tax shows how badly the regime was calling for an overhaul. This also shows how the country’ demographics have evolved over the past few decades.

Further changes like increasing the limit of tax saving under Section 80C from Rs 1 lakh to Rs 3 lakh is an intelligent move, forcing taxpayers to save more for the long term. Like it or not, savings under Section 80C are more by force rather than by choice. By increasing the limit, finance minister Pranab Mukherjee will not only make taxpayers happy but increase the country’s savings rate as well. A good move.

But in an endeavour to bring simplicity there are a few misses. The scope of income has been expanded to include perquisites. The investor community also takes a bitter pill --- while earlier the term ‘long term capital gains’ meant either no tax or low tax, beginning 2011 it would get the same tax treatment as short term capital gains. Security transaction tax (STT) gets abolished, a relief.

However, the exempt-exempt-taxed regime gets effective where investments are exempt at the stage of investment, exempt at the stage of accruals and taxed at the stage of maturity.

Overall a beneficial code. Now for hiccups-free execution.