Decoding - Direct Tax Code (DTC) of India

Today DTC has been placed in parliament. Last week it was approved by cabinet. The surprises:

Positive:
1. No long term capital gain tax if STT is paid (positive from its last draft as there is no long term capital gain tax now also).
2. STT remains for equity transactions.
3. Short term capital gains will taxed at 50% rate of one's tax bracket. So instead of 15% direct taxation, short term capital gain tax will be levied at 5%, 10% or 15%.
4. Mutual Funds and ULIPs have to pay dividend distribution tax of 5%.

Negative:

1. DTC is effective from 1st April, 2012 instead of 1st April, 2011. God knows why it has been tabled so early. Hope it does not go through ever changing drafts from here on (but no complaint if negatives are neutralized in n number of drafts)
2. DTC is way bulkier than it was originally thought of. One of the basic reasons of bringing DTC is to make tax in India simpler.
3. No tax exemption if you invest in ELSS (equity linked tax savings) mutual funds or ULIP.

Other facts:

1. Man and woman will have same tax slabs - that is no tax till taxable income of Rs 2L, 10% tax between Rs. 2L to 5L and 20% between Rs. 5L to 10L, and 30% above 10L (L = Lakh = 100,000, Rs. = INR = Indian National Rupee). For senior citizens first no tax needs to be paid till income of Rs. 2.5L in a year.
2. Corporate tax is now 30% instead of 33.22%. Foreign companies now pay 40% tax, it'll be same as their Indian counterparts and will be at 30%.
3. DTC also proposed to increase the minimum alternate tax (MAT) rate of companies to 20% of book profit from the current 18%. However, under the current Income Tax Act, adding up the surcharge and cess would take the current MAT to 19.93 per cent.
4. Home loan interest exemption (Rs. 1.5L) stays, list of 80C (Rs 1L) exemptions is now very limited and there can be further Rs 50K exemption for some insurance and other products.

DTC not so good for long term capital gain tax on Equity

If Direct Tax Code gets implemented on 1st April, 2011 - long term capital gain on equity instruments will no longer be tax free. Also short term capital gain is no more treated within 365 days from date of investment, it's 1 year from 31st March of that financial year. So if you invest on 2nd April, 2011 - you pay short term capital gain tax till 31st March, 2013 (almost 2 years). Though revised DTC gives some relief on indexation benefit (though not spelled out exactly how much) on long term capital gain, but it is still taxable.

So question is - should we book profit in our equity investments or continue past March, 2011? There are many scenarios - but one thing is for sure - if you need money in next 1 year or so and in a good profit on your long term equity investment - it's better to book profit during Jan-Mar'11. But if you don't need that money - let's think more..

But I'll still love DTC if they maintain those income tax slabs - 30% tax only if your taxable income is more than Rs. 25 Lakh that year. But not sure if they will keep that as they started making DTC more complex and in doing so government will start losing revenue. And when Government wants money - their soft target is salried class. But let's pray..