India and New tax code

The UPA second is on it's way to economic reforms. Earlier we expected it in the maiden budget. But that didn't happened. India incorporated was very much worried on this issue. The silence of the government on disinvestment, insurance and aviation sector reforms created much ado, but it were all waste since government itself go ahead with the expected reforms. (public sector disinvestment has already started with the IPO of NHPC, as many more IPOs are there in the pipeline). ASEAN agreement the trade agreement with the south east asian nation is another development in the overall development. The proposed food security act will only be possible if this agreement came in tto effect. China is very keen in utilizing all the available measures to tap the market in Asia. If India want to survive in this world of open market then we should think beyond china. UPA is still also silent in insurance and aviation reforms. But sooner or later they will consider it seriously.

New tax code
In the union budget there was some hike in the personal income tax limit. This proposal came at a time when global recession showed withdrawal syndrome. It is a simple logic that when the people in a country spends then only the economy of the country booms, we can't always look overseas for development. Which was evident during the time of global recession. China practiced the logic much before. In the global scenario also India is a major market with 1.15 billion people living here. All major global players in the market are now keen in opening branches in this country. As it is a truth all over the world india is a major service hub too (this proves that the salary given in india is cheap that's why all jobs are imported to india). Since the salary in India is very low considering global standards the income tax limit should also be in a rational way. The new tax code serves very well in this regard.
Draft direct tax code had been made public. Now it is left for debate and is proposed to implement in 2011. That means it will get almost 2 years to debate the new tax code. The highlight of the new tax code is the widening of tax limit. According to last general budget upto 1.6lakhs income will attract nil tax, for women the limit is 1.90lakhs and for senior citizens the limit is 2.40 lakhs. As it is a fact higher limit means higher spending by individuals. This in net effect will make positive impact in the economy. In the proposed new tax code income in the range 1.6-10 lakhs will only attract 10% tax only. The next slab is 10-25 lakhs which will attract a tax of 20% and above 25 lakhs the percentage is 30%. If these proposals are implemented there will be a large amount of money flow in the system.
Apart from these innovative steps savings limits will be increased form existing 1lakh to 3 lakhs. MAT (minimum alternate tax-tax payable to companies which are out of tax bracket) will be final tax and no carry over complication. STT, securities transaction tax-to eliminate from April 1, 2011. GST (goods and services tax) will be implemented from next financial year.It is believed that GST is a modern tax system which addresses all modern day tax issues.

Is it good
The new tax code is good to some extent. It will enable individuals to flow money to the market. The draft also proposes a reduction of 5% in corporate tax. The government is very sure that there will not be any loss in the revenue. Moreover it will bring transparency and simplicity to the system. The existing income tax law, 1961 will be replaced by the new law and India will reach in the 21st century taxation with the implementation of the same. Government plans to implement the tax tax law at the golden jubilee year of the existing tax law.
More aggressive debate is needed in this regard. If more simplicity is needed it should be done. Awareness in this regard should be done in a proper manner. Grass root level awareness is also required. If it is found out that the new system will cut governments revenue it should not impose new taxes on the people it should consider alternate measures to address the problem.