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ARTICLE: Indian Economy: Direct Tax Code (DTC)
Thursday, 16 February 2012 11:12

Direct Tax Code (DTC)


The compatibility and conduciveness of a taxation system plays an important lubricating role in the overall growth and direction of an economy. Tax laws are often seen not as a mere framework for the government to collect revenues, but as an effective tool to direct and propel the economy to higher levels, more so in a developing economy like Indian Economy. The government of India proposed several changes in the tax system from time to time. The new Direct Tax Code (DTC) seeks to bring about a paradigm shift in the direct tax system. The objective of the new code is to improve the efficiency and equity of Indian tax system by eliminating distortions in the tax structure, introducing moderate levels of taxation and expanding the tax base. A good tax system should minimise the cost of collection, compliance cost and the cost to the economy in terms of the distortions it creates while generating revenues. Three considerations should govern any tax proposal : efficiency, equity and simplicity. That is, a tax should promote economic efficiency and provide incentives for desirable behaviour; it should aim for vertical equity (rich folk should pay more) and horizontal equity (some sorts of gains should not get preferential treatment over others); and it should be simple to administer, reducing litigation and evasion.

The proposed DTC has several features in its favour. First, in naming it the direct tax code and not the Income tax (IT) Act. Second, there has been a conscious effort to do away with exemptions – so that effective rates of taxation reflect the charges on incomes that are transparently defined. This is a major shift away from area-based exemptions from choosing winners and losers in industry and, indeed, in removing distortions that have crept in the way of development initiatives. What the code seems to be saying is that while particular classes of individuals – such as women and senior citizens – deserve differential treatment, there is no room for distortion on the basis of geographical region or industry segment. This is again a sign of a maturing economy that believes in market forces rather than on state-sponsored growth initiatives. Third, there is considerable relief for individuals, while less so for business entities. The highlight of the decade will surely be the introduction of the Direct Taxes Code (DTC) which is a bold attempt to simplify the tax law and offer greater certainly to the taxpayers. The twin implementation of a sensible DTC and Goods and Services Tax (GST) in India should usher in much awaited simplicity and certainty for the hapless taxpayer in India.

Existing System Needs Change

The fall out of the reform process is that tax collections have exhibited a certain amount of buoyancy in response to a rise in GDP. Indeed, a fall in tax rates has led to a pick-up in yield in direct taxes to a little over 4% of GDP as compared to around 1.4% in mid-nineties. However, this is much lower than the 7-9% prevailing in most developed countries. This calls for further reforms in our tax system. Clearly, there is considerable scope for raising yield and improving the elasticity of tax collections. The time has come to move further in the direction of a simple, neutral and efficient tax system which encourages capital formation in industry even while ensuring a steady revenue stream for the government.

In more ways than one the new direct tax code is a culmination of tax reforms initiated in the clearly 90s. First that modest tax rates create virtuous circle of improved compliane and widen the tax net. Second, the so-called undocumented Laffer Curve effect in which lowering of tax rates in fact improve overall revenue realization. Taxation must subserve multiple objectives. Most importantly to finance public expenditure  but in the process combine equity and efficiency. In doing so it needs to harmonise the objectives of maximising resources with a wider social purposes of fostering development, encouraging capital accumulation and investment as well as minimising the distortionary impact of exemptions designed to benefit a group of individuals or segments of society.

The gradual dismantling of the pernicious tax system began in 1975, continued 10 years later with Finance Minister V.P. Singh and his long-term fiscal policy and picked up speed after the economic reforms of 1991. Similar, changes were also made in indirect taxes and import tariffs, with lower ad fewer rates. It is expected that the new system of income and corporation taxes widens the tax base, minimizes distortions and increases tax revenues. The latter is especially important since higher direct tax collections will help the government further reduce its dependence on indirect taxes; the former are usually progressive and the latter tend to be regressive. What this means is what a globalization and private sector driven Indian economy will have a modern and efficient tax regime, helping the process of economic growth.

The appreciate the true importance of the draft direct tax code one needs to trudge back to the earlier years socialism. There were 11 income tax rates ranging from 10% to 85% depending on a person’s income. Then there was also a 15% surcharge, which meant that effectively the top marginal tax rate was 97.75%. So an individual liable to pay the maximum tax rate had to give Rs. 97.75 of every extra Rs. 100 he earned to the government. The only two rational responses to this would be to stop working or evade taxes. In short, India has a tax system designed to kill initiative and promote black money.

The old structure of a complicated direct and indirect tax system corresponded to a stagnant economic system where very few individuals and companies paid various kinds of taxes and a vast majority were not under the purview of either because of deliberate non-compliance or a lack of income. However, almost uninterrupted growth in the last decade created new businesses and helped many old ones expand and enabled them to pay taxes. Still, many of them are not under the tax net partly because of the high transaction costs of an unnecessarily complicated system of taxation. Earlier, this did not matter because the size of the taxpaying population was small any way. However, an ever increasing number of potential taxpayers, reductions in transaction costs thanks to transparent tax rules, the availability of low-cost technology for surveillance and encouraging participation of states in the CENVAT introduced in 2004 have relaxed both political and economic constraints. These developments have made tax reform a politically superior instrument for revenue collection. Surely, there is an urgent need to overhaul the Indian income tax system to bring about the much needed simplicity and transparency and to minimise distortions. The purpose of the new code is to simplify the enormous complexities in direct taxes since the enactment of Income Tax Act, 1961.

In the wake of liberalization, the Indian direct tax regime has become one of the most iniquitous in the world. First, unlike in many other countries, India does not have an inheritance tax. Second, under the present gift tax regime, gifts to a wide range of close relatives are exempted, without any monetary limit. For all practical purposes, the gift tax has been abolished. Third, the exemption of financial assets from wealth tax amounts to a major dilution. Fourth, the total exemption of dividends from income tax in the hands of the recipient has resulted in huge tracts of income becoming free from income tax. Fifth, the exemption of long term capital gains from stock market transactions (with the introduction of the Securities Transaction Tax) puts large tracts of income outside the tax net. All these changes have resulted in the direct tax system becoming plutocratic, with the balance tilted against relatively lower incomes.

Main Features of DTC

The tax code introduces several features, which deserve attention: First and foremost in fostering savings and investments by discouraging consumption. Second the code accepting the principle of grandfathering and seeking prospective applications avoids multiple controversies and makes for easier transitions. Third while retaining exemptions in religious institutions but subjecting other trusts and organization to a modest 15% tax, it combines the virtue of pragmatism, while minimising multiple misuse. Fourth, the simplification of capital gains tax by eliminating the distinction between short term and long term gains and encouraging more transactions by eliminating the distinction between sort-term and long-term gains and encouraging more transactions by eliminating the security transactions tax and simplifying the divided distribution tax are positive. Fifth, the provisions of a minimum alternative tax at 2% of the value of gross assets is based on the principle of incentivising efficiency. This deserves wider consultations. The original intend of MAT needed to be restructured to subserve its original intent. Sixth, while the provisions of general avoidance rule and double taxation is designed to prevent misuse, it is not clear if a code can override existing international treaties and obligations embedded in double taxation agreements. Given international experience and the need to discourage round tripping, this is a good time to renegotiate our multiple double taxation agreements by aligning them with the provisions of the tax code. Finally, litigation and tax pendency has been an area of continuing concern. Alternative tax resolution methods and dispute settlement mechanism need further innovation.

(i) Treatment of Savings- The code proposes to make a major departure in the treatment of savings from the prevailing system of total exemption on savings as well as the return from savings to a system of Exempt-Exempt- Tax (EET). It is proposed to increase the exemption from the prevailing Rs. 1 lakh to Rs. 3 lakh in pre specified instruments. This treatment applies to current savings as well as to any superannuation and savings in pension funds. While theoretically there is much to commend this treatment of taxing savings, its political acceptability remains to be seen for, levying taxes on super annuation benefits and pension funds may be unpopular as it is perceived, inappropriately so, to place hardship on senior citizens who may not have any other regular source of income.

(ii) Treatment of Capital Gains- One area where the proposed code goes seriously wrong – capital gains tax. Indeed, the underling issues are fundamentally misunderstood globally. The proposed capital gains tax. Indeed, the underlying issues are fundamentally misunderstood globally. The proposed capital gains tax will exempt people who never sell any assets, and penalize those who do. Assets rise in value whether they are sold or not. Reshuffling a portfolio of assets meaning selling some assets and buying others. The proposed tax will be levied only on gains from sales, not on gains in the value of unsold assets. So although reshuffling is economically efficient and financially prudent, the proposed code will tax this good practice and exempt the bad alternative. That is terrible policy. It makes better sense to levy capital gains tax only on assets that are liquidated – converted to money. Portfolio reshuffling should be encouraged, and so the new tax code should exempt reshuffling.

The proposed change in capital gains tax fails on three counts – efficiency, equity and simplicity. International studies show that revenue from capital gains tax is typically under 1% of total revenue. It is nevertheless widely used to check the conversion of income into capital gains to avoid tax (zero coupon bounds are one example of such conversion). For the same reason, many countries levy gift tax: this too yields little revenue but checks  evasion.

This, then, is a sound reason for levying capital gains tax in India. It also improves vertical equity to the extent it gathers revenues from rich folk who are taxed relatively lightly today. However, economic practice can vary dramatically from theory in tax administration in the last decade, taxes are widely evaded and many transactions (and associated capital gains) are not officially reported.

Agricultural land (save that within 8 km of a town) is exempt from capital gains tax, a huge legal loophole exploited by evaders. So taxing capital gains, which looks theoretically good in terms of vertical equity, can in practice be bad for equity – it taxes honest folk while leaving out very rich evaders. So, viewed from the three criteria of efficiency, equity and simplicity, the proposed tax code needs a different approach to capital gains tax. Most important of all, portfolio reshuffling should be fully exempt from capital gains tax. There is no reason for not considering capital gains as legitimate income and subjecting them to tax.

(iii) Rates and Slabs- The Direct Tax Code, proposes a substantial reduction in the rates of tax on corporate income, near removal of the difference in the tax treatment of domestic and foreign companies and a shirt ijn the base of Minimum Alternate Tax (MAT) from book profit to value of gross assets. It also envisages doing away with a large number of exemptions and deductions though in a few cases, these profit-linked incentives are replaced with a new set of incentives linked to capital investment. The net impact of these measures of India Inc would be substantial and mostly positive but might vary from company to company.

The proposed asset-based MAT levy, introduced with the sincere objective of simplifying and reducing litigation and encouraging optimal utilization of resources, could have the unintended consequence of impairing capital formation in the economy. It should be mentioned here that the reasons for introducing a MAT in the first place was to reduce the scope for companies to undertake tax planning and become no or low profit companies with very little liability for   corporate tax, while, at the same time, declaring reasonable book profits.

In the last few decades of the exemption raj, most big businesses hardly paid any tax as they kept availing of accelerated depreciation and other tax holidays provided to drive investments. This can be established by just looking the number of companies that pay just the minimum alternate tax base.

(iv) Treatment of Non-profit Organisations- The most contentious issue is the proposal to withdraw exemptions to charitable institutions. Presently, not for profit organizations (NPO) enjoy exemption on their donations as well as any surplus they create under Sections 80-G or 35(1)(3) of the Income Tax Act. Many committees on tax reform have suggested changes in the treatment of NPOs to avoid the misuse of the exemptions by them. Indeed these institutions provide various public services and serve a variety of public purposes which the government is unable to. Although the intent is to prevent the misuse of the exemptions, the proposal extends the scope of the tax even to genuine institutions involved in anti-poverty interventions, social organizations, education and healthcare activities and those engaged in serious academic and policy research. The code dispenses away with the term Charitable  Purpose and replaces it with ‘permitted welfare activities’ which include relief of the poor, advancement of education, provision of medical relief, preservation of environment, preservation of monuments of places and objects of artistic or historic value and any other object of general public utility. It is proposed that the surplus earned by these organizations be taxed at the rate of 15%. Clearly, the code seems to have underestimated the good work done by many NPOs. While it is possible that provision for exemption has been misused, it would be improper to deny the benefit to genuine charitable institutions, research organizations and other NPOs which do  considerable philanthropic work, further the cause of education, health and research. In fact, providing incentive to them to generate surpluses will enable them to build corpuses which in the longer run will reduce their dependence on the government.

Deficiencies in the Code

Adam Smith laid down four canons of taxation, namely, equity, convenience, economy, certainly and clarity. The Code promises simplicity but it still has as many sections as the present Act. Equity requires that taxes must be quitable and fair between different classes of society.

The proposal to bring back the wealth tax into the tax system in the code is welcome from the viewpoint of equity as well as revenue. However, levying the tax at 0.25% of the value of wealth when it exceeds Rs. 50 crore makes a mockery. Such tokenism is unlikely to either garner revenue nor will it improve equity. The wealth tax needs reconsideration. It should also be recognized that if the threshold for the tax is wealth of Rs. 50 crore, those who might fall into the tax net will probably find ways to avoid paying the tax, by either moving their shareholdings into interlocking networks of companies, or by delisting stocks (in case valuation is on the basis of market price, an issue of some uncertainly). If the tax encourages such undesirable behaviour and yields little revenue as a result, it would be as well to not introduce it at all.

Problem of Tax Evasion and Black Money

Desired objectives of tax policy can be achieved only when it is properly administered. Failure in appropriately administering the tax laws allows tax evaders to thrive. This defeats the purpose of a fair tax policy and threatens the canon of equity. It is widely believed that tax evasion in India is rampant in taxes on income and property, and in domestic trade taxes. The need to be tackled on various grounds. Tax pundits have been urging the government to bring in an anti-avoidance provision in the law. There’s a provision in a Code bringing in a general anti-avoidance rule. This should effectively tackle situations arising out of round tripping of funds through the Mauritian route. Simultaneously, provisions for penalty and prosecutions have been tightened. No doubt, tax evasion is harmful to the economy. Some find tuning is required for the anti-avoidance arrangement. The farm lobby has been able to block levy of central tax on agricultural income. The Code could have remedied this injustice.

Politically, the most important thing on the part of the government is to have a strong will to fight it out. Estimates may vary, but clearly, the size of the black economy is monstrously large. Surely, the problem is not acute – it is chronic. Perhaps we need to move forward in all directions with a bold and renewed agenda. Alongside, we need to provide a world-class modern and efficient tax administration using IT and reduce compliance cost for the assesses. A new approach in tax administration for both direct and indirect taxes is called for. People’s aversion to tax departments seems to have gone beyond a simple dislike for paying taxes. The tax laws and procedures must be rewritten. Those who wish to mend their ways and pay taxes or duties should be encouraged rather than punishing so heavily that they turn indifferent.

The government, in its new Direct Tax Code, has sought to introduce provisions to prevent the misuse of double taxation avoidance treaty that India has with a few countries. In many instances, however, these agreements have been misused to evade taxes. This is called treaty shopping, where usually residents of a third country. The government is seeking to plug these loopholes.

Profit-based tax incentives are sought to be systematically eliminated in the draft Direct Taxes Code. This is proposed to be achieved by migrating from a profit based to an expenditure based incentive scheme. For example, large infrastructure projects including development of Special Economic Zones (SEZs) have moved away from profit-based deduction to a deduction of revenue and capital expenditure from gross receipts. Continued emphasis on deductions based on social tax expenditure such as medical premia and interest on education loans are likely to be retained. Social tax expenditures also include amongst others, medical treatment, deduction for handicapped and donations to various relief funds where the Code seeks to continue incentives. Seven specific infrastructure projects have been covered in the Code. The ones recognised include generation, transmission or distribution of power, defined infrastructure facility, hospitals in specified areas, processing of fruit and vegetables, cold chain and agricultural warehouse facilities. Cross-country natural gas and crude and petroleum pipeline distribution networks are also covered. In summary, the new Code has taken cognizance of the recommendations made by the Parliamentary Standing Committee on Finance that recommended a comprehensive rationalization of existing tax incentives.

The draft provides that wherever there is any dispute between the provisions in the Code and those in the tax treaties signed by India with over 70 foreign jurisdiction, the former would prevail. This would be a huge jolt to the foreign companies which have established their presence in India or have entered into business transactions based on certain beneficial provisions in the tax treaties. It is unclear as to whether the Code could override the tax treaties just because it is introduced after the signing of tax treaties and in such cases what would happen to the sanctity of the various tax treaties. On international tax and transfer pricing, the long standing demand of introducing an Advance Pricing Mechanism (APM), which would function as a forum to bring certainly to transfer pricing issues has been accepted. The steep penal consequences for non-maintenance of transfer pricing documentation have been reduced, but prosecution followed by imprisonment has been introduced for non-compliance.

The Revised Discussion Paper (RDP) on the Direct Taxes Code (DTC) has served to reassure the two harried constituencies. While the corporate sector is relieved that the Minimum Alternative Tax (MAT) would be what it is and not the one proposed by the DTC. DTC proposes to revert to the computation mechanism with reference to book profits. This may appear as a significant relief for the taxpayers; however there are certain factors which may still contribute to the uncertainty with regard to the MAT regime.

The revised draft restores the tax exemption on the more important savings schemes, which is a welcome development in a country where high quality social security schemes are few. Promoting long term contractual savings has been a national priority and taxing withdrawals of retirement benefits would have been a major disincentive to severs, insurance companies and others. In another departure from the earlier draft, the tax deduction for interest paid on housing loans will remain. It will protect to some extent home owners from the vagaries of interest rate movements. On many other debatable points, such as the powers to override tax treaties and the special concessions to the SEZs, the revised code has provided clarifications.

The DTC in particular promised to bring a certain stability to India’s rule-based than exception based. At first sight, the second draft of the direct tax code disappoints on this count. The revised draft of the new direct tax code dilutes proposals present in the earlier version. While this will significantly crimp the government’s ability to lower tax rates, it is likely to make companies and a few other categories of taxpayers happy. Foreign institutional investors, in particular, in particular, have reason to cheer because the revised version of the tax code allows them to continue to benefit from double tax avoidance agreements. Financial assets such as securities would be kept out of the ambit while assessing wealth tax, the revised draft of the direct tax code has proposed.

The revised discussion paper on the direct taxes code (DTC), which seeks to address major issues raised by the various stakeholders in response to the first draft, indicates that the effort to whittle down the enormous complexities of the Income Tax Act of 1961 will be no easy exercise. The new proposals, unfortunately, dilute the primary objective of a reformed DTC to reduce the number of exemptions and preferences provided to income and corporate tax payers.

After a series of deliberations and consultations, the Direct Taxes Code (DTC) has been tabled in Parliament on August 30, 2010. The DTC will come into force from April 1, 2012. Needless to mention, this policy document is a major exercise in redrafting a legislation that stood the test of time for almost five decades. While the proposed DTC has 319 sections and 22 schedules, there are 298 sections and 14 schedules in the existing act. Various parts of the  DTC deal with a plethora of subjects, including income tax, dividend distribution tax, tax on distributed income, branch profit tax, wealth tax, prevention of abuse of the code, tax management, general provisions and interpretation of the code. Its sections deal with number of issues such as basis of charge of the tax, computation of total income, foreign tax credit, income from business and residuary sources, capital gains, tax incentives, special provisions relating to the computation of total income of non-profit organisations, deduction at source, advance tax and payment of wealth tax. The proposed bill also has sections to deal with recovery, prosecution and penalties.


The draft direct tax code, is a complete rewriting of the country’s direct tax regime, and the most radical such move in half a century. It has features that are mostly welcome, but also elements that will generate debate – and hopefully lead to a review. At a broad political and philosophical level, the draft direct taxes code has many interesting dimensions. Just imagine the political capital the government will reap among India’s growing middle classes once the direct taxes code replaces the present Income Tax Act. Reform in tax structure isn’t the hardest reform to push.

The key is overall direction of direct tax reform, focussing on a simplified and harmonised system, with low rates and broader base, thereby reducing compliance costs and increasing direct tax – GDP ratio. In any case, the explicit objective of the direct taxes code- to provide a stable tax regime in the medium to long term-is welcome. Frequent changes in tax laws, in any commercial law, for that matter, affect long term planning of businesses as well as optimum use of the assets. Unfortunately, one cannot apply a simple acid test on such a complex subject as this to describe it as good or bad.


Highlights of a Direct Tax Code

In General

  1. Earlier Income Tax Act and Wealth Tax Act (Covering Income Tax, TDS, DDT, FBT and Wealth Taxes) are abolished and single code of Tax, DTC in place.
  2. Concept of Assessment year and previous year is abolished. Only the ‘Financial Year’ terminology exists.
  3. Only status of ‘Non Resident’ and ‘Resident of India’ exits. The other status of ‘resident but not ordinarily resident’ goes away.
  4. Earlier the terminology of assess was meant for the person who is paying tax and/or, who is liable for proceeding under the Act. Now it has been added with 2 more definitions namely a person, whom the amount is refundable, and/or, who voluntarily files tax return irrespective of tax liability.
  5. No changes in the system of Advance Tax, Self Assessment Tax and also TDS. Amendment of TDS goes in line with earlier Notification 31/2009 which speaks of Form 17/UTN/etc.

In TDS, a new return, if found required, will be introduced for Non TDS payments.

  1. Government assess is covered in Direct Tax Code. Even though they are not liable for Income Tax/Wealth Tax, Government Assesses are required to Comply with provision of TDS and TCS. (Current act was not covered with Government Assesses).


Tax Incentives

  1. Earlier terms Deductions under Chapter VI-A will be treated as Tax incentives.
  2. 80C gets a major hit by introduction of EET methodology (Exempt-Exempt-Tax). The investment is Exempted when invested. The investment is Exempted till it is remained invested. The investment is Taxed when it is withdrawn:

(a)   Also, investments are considered only of those invested through savings intermediaries approved by PFRDA (Pension Fund Regulatory and Development Authority).

(i)     Such savings intermediaries may in turn invest in ELSS mutual funds, government securities, public sector securities, etc.

(ii)    Such investments are also exempted to the maximum of Rs. 3 lakhs.

(b)   All such savings will be governed directly by government by an appointed depository (an independent agency).

(c)   Other than this, Tuition fees for children will be allowed as deductions.

(d)   No maximum limit for this, as savings are charged once they are withdrawn.

  1. Medical treatment, higher education loan interest, donation and rent paid by self-employed individual are deductible.
  2. New provision comes for Handicapped individuals to get deductions up to 75,000.


Major Deductions Applicable Under Tax Incentives for an Individual:

  1. Investments through PFRDA approved agencies (Max. Of 3 lakhs)
  2. Payment of tuition fees
  3. Medical treatment
  4. Health insurance
  5. Donations
  6. Interest on loan taken for higher education
  7. Maintenance of a disabled dependant
  8. Interest income on Govt. Bonds

Note- Some more for specific cases, like political contributions, royalty, etc.


Deductions from Salaries:

  1. Allowed are only, PT, Transport Allowance (limit prescribed) and special allowances given exclusively to meet duties (to the extent actually incurred.)
  2. Also deduction is allowed for PF as tax incentives.
  3. And last, deductions are allowed for Voluntary retirement, Grauity on retirement and pension received.
  4. No deductions on HRA, Medical reimbursements, etc.
  5. Employer part of PF paid will be exempt from tax as Tax Incentives under EET methodology (to employees).


House Property:

  1. No deduction for Housing loan repayment of Self-Occupying property. This includes interest as well as part of principal.
  2. Only Let out properties are considered and the Gross rent and specified deductions are taken with simple calculations.


Residuary Sources (Other Sources)

  1. Earlier things follow almost.
  2. Any amount exceeding 20,000 taken/accepted/rapid as loan or deposit, otherwise by an account payee cheque/draft shall be added to the income.


Computation of Total Income

  1. Incomes are broadly divided into 2 sources, namely Special Sources and Ordinary Sources.
  2. Special sources are given no deduction and what is earned is taxed directly (generally at a lower rate).
  3. Ordinary sources are divided into further categories, namely:

(a)   Income from employment.

(b)   Income from House Property.

(c)   Income from Business.

(d)   Capital gains.

(e)   Income from Residuary Sources (Similar to other sources, with some minuses).

Computation of Total Income Under DTC

  1. Income from Lottery or Crossword puzzle, Race, Gambling or Betting.
  2. Investment income earned by NRIs.
  3. Income of Non-resident Sportsman through participation in games or through advertisement or writing articles relating to games in print media.
  4. Guarantee money received by Non-resident association or institution.

Ordinary Sources

  1. The 5 categories of Ordinary sources can have multiple sources under each head (e.g., Multiple employer, Multiple Business, multiple Properties, etc.).
  2. The income will be computed in 2 steps procedure for each head:

(i)     Calculate for each source under each head of Income.

(ii)    Aggregate the total under each head and arrive a total profit or loss under such head.

  1. Then aggregate all the 5 heads and arrive the figure of ‘Current Income from Ordinary Source’.
  2. Then this value has to be aggregated with ‘unabsorbed losses as of immediate preceding financial year’. Such aggregated income will be treated as ‘Gross Total Income from Ordinary Sources’.
  3. Such Gross Total Income will be further reduced by incentives similar to earlier Chapter VI-A deductions. The resultant amount will be ‘Total income from ordinary sources’.



New Tax Rates: For Ordinary Source of Income


Income Between

Tax Rate





0 – 1.60 lakhs

1.60 lakhs to 10 lakhs

10 lakhs to 25 lakhs

Above 25 lakhs





  1. For Female, second slab begins from 1.90 lakhs and for Senior citizen it begins from 2.40 lakhs.
  2. Companies tax rate changed from 30% to 25%.