Oct 9, 2009

New Direct Tax Code: Income Tax Slab Rates

Photo by Seven Null7

The draft Direct Taxes Code (DTC) Bill, 2OO9 will become applicable from April 1, 2011, if enacted.

Under Section 2(2) read with first schedule of the Direct Taxes Code (DTC), 2009 the new tax rates and slabs applicable to individual tax payers from the financial year (FY) 2011-12 are as follows:

New Direct Tax Code: Income Tax Slabs / Rates from FY 2011-12

New IT Slabs/ Rates for Resident Senior Citizens (FY 2011-12 onwards):

Up to Rs 2,40,000-----------------> No tax / exempt
2,40,001 to 10,00,000------------> 10%
10,00,001 to 25,00,000-----------> 20%
Above 25,00,000------------------> 30%

New IT Slabs / Rates for Resident Women (below the age of 65 years) (FY 2011-12 onwards)

Up to Rs 1,90,000-----------------> No tax / exempt
190,001 to 10,00,000-------------> 10%
10,00,001 to 25,00,000-----------> 20%
Above 25,00,000------------------> 30%

New IT Slabs / Rates for Other Individuals (FY 2011-12 onwards):

Up to Rs 1,60,000-----------------> No tax / exempt
160,001 to 10,00,000------------->10%
10,00,001 to 25,00,000----------->20%
Above 25,00,000------------------> 30%

Unlike the current IT Act, 1961, under new tax code (DTC) there is no special / concessional rate of tax on short term capital gains and long term capital gains. The only income which doesn’t form part of the ordinary income as per above IT slabs is winnings from lotteries, races, card games, gambling, betting etc. It is taxed separately at special tax rate of 30%.

It is expected that individual’s tax burden will reduce substantially due to increase in exemption / deduction limit for savings from 1 lakh to 3 lakh and widening / expansion of tax slabs under the new direct tax code. Further the surcharge and education cess is also done away with.

Although prima facie it seems that new tax code will lower your tax liability but the fact is otherwise. There will be more tax outgo from salaried taxpayers pocket under the new tax regime. Put another way, your effective tax rate would see an increase as I shall discuss in more detail in subsequent posts.

Also see:

1. Income Tax Slabs / Rates for FY 2009-10
2. New Tax Code: Boost to mis-selling of Life Insurance


  1. K.MuralitharanOctober 11, 2009

    Hi Fisher,

    Can you explain how this new DTC affects long term and short term capital gains arising out of investing in stock market ( equities) ?


  2. Mr. Murali: The new tax code makes both the capital gains short term as well as long term arising out of sale of shares form part of your taxable income and accordingly taxed at maximum marginal tax rate applicable to you. The only relief is in the form of indexation benefit available on sale of shares after one year from the end of the financial year in which the shares are acquired.

    In short, the proposed direct tax code (DTC) is going to significantly increase your tax burden on investment income arising from equities.

  3. Hi Fisher,
    I (28+ yrs) was planning to open a PPF account primarily as part of retirement planning. But with DTC in the horizon, I'm not able to decide whether it is still a good option to go for PPF? Because if I start now and DTC is enacted then, except few all my contributions will come under DTC tax bracket. Currently my 80c quota stands exhausted (total Rs 1.5L against max 1.0L). What would be your suggestion here, to go for PPF or Retirement/ Pension type Mutual Fund (Templeton, UTI) or some other option?

    S. Ghosh

  4. Ghosh: You should definitely go for PPF without any second thought because of the following reasons;

    1. PPF is a must have item in every individual’s investment portfolio. For more details, please read: “How to invest in PPF: 10 Practical Tips”, which gives a comprehensive view of the benefits of PPF.

    2. As of now, Direct Tax Code (DTC) is only a bill yet to be approved by the legislature. Further, Finance minister has also acknowledged that DTC needs a thorough review. Among the specific provisions of DTC which will be given another look is EET tax regime.

    3. Due to grandfathering clause, all your contributions to the PPF account till March 2011 will be tax exempt. So right now there is nothing to worry about because even if the new DTC comes into operation as scheduled, the option is always open to you to change your investment strategy in future.

    4. If DTC is enacted in its present form, it is going to impact after tax returns of all investment options and the relative superior position of PPF among all the debt investment options still remain intact.

    5. PPF certainly scores over Pension Plans of mutual funds (Templeton / UTI).

    So, just go ahead with your PPF investment. I promise that you won’t regret it.

  5. Thanks Fisher for your feedback. After my last post, even I was thinking about the DTC impact on all form of investments that you correctly pointed out under point no. 4. I'm also getting a feeling that even if DTC is enacted, as scheduled or little later, it may not implement the tax code proposals in its present form for PPF and similar investments ... reason? social structure and positions of our country, expected oppositions form different political parties ... Let's see.

  6. Hi Fisher,
    I m confused regarding my investment. I believe in investing in Mutual Funds & my agent ask me to invest in Ulips. I m told that after the new DTC coming in action in 2011, then income from Mutual funds will be taxable, where as income earned from Ulips will be non-taxable. Due to this, I am not able to decide to where should I invest.
    I want to take term insurance from LIC or HDFC? Which is the best?.

    Plz. suggest.

    Special request. Could you plz. reply me to my email - ABA_411018@YAHOO.CO.IN.

  7. HI,
    IS ULIP investment will come under 80C in the finanacial uear 2011-12.I heard that ULIP will come out from tax saving plan.Is it true?

    Patel R.S

    Plz Mail Me patelgrs@yahoo.com


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