The new DTC is a watered down version of the original draft that had promised sweeping changes in the tax structure. It displays neither the reformist zeal nor the longterm vision required to break free from the archaic provisions of the Income Tax Act.
It is no different from the existing Act, only bulkier with 23 additional sections and 8 more schedules. There are some obvious reasons for the praise showered on the DTC after it was tabled in Parliament. The basic tax exemption has been hiked to Rs 2 lakh a year and the tax slabs have been raised.
Also, tax exemption for long-term capital gains from stocks and equity funds has been restored, much to the joy of the markets. But this is just a sleight of hand by Finance Minister Pranab Mukherjee.
The tax slabs are much lower than those proposed under the original DTC. Besides, the web of exemptions and deductions will continue. "The main purpose of the DTC was to simplify the tax structure and eliminate the ifs and buts that have plagued direct tax compliance in India. But the new code has retained most of the ifs and buts," says Rajiv Deep Bajaj, vicechairman and managing director of Bajaj Capital.
Experts are disappointed by the difference between the original proposals and the ones that were eventually tabled.
To be fair, there are some investorfriendly aspects of the DTC that need to be underlined. For instance, a life insurance policy will be eligible for tax deduction only if the cover is at least 20 times the annual premium. This will probably stop the purchase of life insurance policies as a tax-saving tool.
Over the next few pages, we shall look at this as well as the other changes that the DTC will bring about in our financial lives.
Reforms on the backburner