The two major big ticket reforms - Goods and Services Tax (GST) and Direct Tax Code (DTC) should be implemented in 2012-13. The Bill, which seeks to replace the ancient Income Tax Act, 1961, was tabled in Parliament in 2010 with an aim to rationalize the tax rates, expand the tax base and minimize exemptions. Earlier, the UPA II government had hoped to introduce the DTC and GST together, under the given situations, it is unlikely to happen. The introduction of the GST will consider most of the indirect taxes of the Centre and the States. The tax reform has already missed the implementation target of April 1, 2011 and looks all set to miss the deadline of 2012.On the other hand, DTC is likely to happen as the finance ministry officials have completed the ground work including preparing the basic rules and guidelines for its implementation. Further, taking into account the need for fiscal consolidation, it would be practical not to expect any tax concessions from the Budget. However, the high inflation, which corroded the purchasing power of the people, it is likely that the Budget might give some relief to those in the lower tax bracket.
Apart from GST and DTC, the centre is also planning to increase the income tax exemption for up to Rs 3 lakh paid as interest on housing loans in one year as compared to the current limit of Rs 1.5 lakh with the aim to strengthen housing sector credit. Further, the Stock exchanges are pitching for abolition of the Securities Transaction Tax (STT) on equity trades, as STT paid may be allowed as deduction by including it in the cost of acquisition and selling expenses under the Capital Gains, which will help in strengthening the capital market.