The new direct taxes code, proposed to be implemented from April 2011, aims to moderate effective tax rates. The most significant changes proposed in the direct taxes code are the savings in personal income tax that could lead to tax savings of up to Rs2.67 lakh each year. The current 10 per cent tax rate applicable to incomes between Rs1.6 lakh and Rs3 lakh, will apply to incomes between Rs1.6 lakhs and Rs10 lakhs. Hence after the implementation of the new proposals, incomes between Rs3 lakhs and Rs10 lakhs could save up to Rs1.17 lakhs from their annual tax liability.
 
The next slab of the 20 per cent income tax slab would be applicable for incomes between Rs10 lakhs and Rs25 lakhs, which currently applies to the Rs3 lakh to Rs5 lakh bracket. The 30 per cent income tax slab would apply to incomes exceeding Rs25 lakhs. After the new changes, benefits to taxpayers with annual incomes of Rs25 lakhs or more would be about Rs2.67 lakhs per annum. Another big proposal on the new direct taxes code is exemptions on savings up to Rs3 lakhs rather than the Rs1 lakh currently allowed under Section 80C of the IT Act. However, in the new propsal, there is no mention of any exemption for housing loans, though the exemption for higher educational loans will stay.

 
The exemption limit for tax payment will continue to be higher for women and senior citizens. Women will have to pay tax only if they earn more than Rs1.9 lakhs a year, while senior citizens will have to pay tax when their income exceeds Rs2.4 lakhs a year. As in the case of personal taxes, the new direct taxes code mentions corporate taxes. As per the new proposal, the corporate rate too is to be cut from the existing 30 per cent (excluding cesses and surcharges) for domestic firms to 25 per cent. Besides these, companies can carry forward losses for as long as they like, whereas earlier, a loss could be set off against profits only within the next eight years.
 
In the case of foreign companies, in addition to the 25 per cent tax, there will be a 15 per cent tax on 'branch profits’. Branch profits, the code explains, is defined as total income minus corporate tax. This seems to suggest that the effective tax rate for foreign firms could actually be slightly higher than the current 35 per cent. The proposals of the direct taxes code are available on the finance ministry’s website and the government has invited suggestions.