The New Direct Tax Code (DTC) is said to replace the existing Income Tax Act of 1961 in India. It is expected to be passed in the monsoon session of 2010 and is expected to be enforced from 2012.
During the budget 2010 presentation, the finance minister reiterated his commitment to bringing into fore the new direct tax code (DTC) into force from 1st of April, 2011, but same could not be fulfilled and now it will be applicable from 1st April, 2012.
DTC bill was tabled in parliament on 3oth August, 2010. There are big changes now in monsoon session and There are now much less benefits as compared to what were in the original proposal.
Here are some of the salient features and highlights of the DTC:
1. DTC removes most of the categories of exempted income.
a) Unit Linked Insurance Plans (ULIPs),
b) Equity Mutual Funds (ELSS),
c) Term deposits,
d) NSC (National Savings certificates),
e) Long term infrastructures bonds,
f) house loan principal repayment, stamp duty and registration fees on purchase of house property will loose tax benefits.
2. Tax saving based investment limit remains 100,000 but another 50,000 has been added just for pure life insurance (Sum insured is at least 20 times the premium paid) , health insurance, medi claims policies and tuition fees of children.
But the one lakh investment can now only be done in provident fund, superannuation fund, gratuity fund and new pension fund.
3. The tax rates and slabs have been modified. The proposed rates and slabs are as follows:
|Income Tax Rates/Slab for Assessment Year 2013-14 (Previous Year 2012-13)||Rates/ %age|
|Up-to Rs 200,000 (for senior citizens 250,000)||Nil|
|Between Rs 200,000 to 500,000||10%|
|Between Rs 500,000 to 1,000,000||20%|
No enhanced limit for women. Men and women are treated same now .
Surcharge and education cess are abolished.
4. Exemption will remain same as 1.5 lakhs per year for interest on housing loan for self-occupied property.
5. Only half of Short-term capital gains will be taxed. e.g. if you gains 50,000, add 25,000 to your taxable income.
Long term capital gains (From equities and equity mutual funds, on which STT has been paid) are still exempted from income tax.
6. As per changes on 15th June, 2010, Tax exemption at all three stages (EEE) —savings, accretions and withdrawals—to be allowed for
a) provident funds (GPF, EPF and PPF),
b) NPS (new pension scheme administered by PFRDA),
c) Retirement benefits (gratuity, leave encashment, etc),
d) pure life insurance products & annuity schemes.
Earlier DTC wanted to tax withdrawals.
7. Tax exemption on Education loan to continue.
8. For incomes arising of House Property: Deductions for Rent and Maintenance would be reduced from 30% to 20% of the Gross Rent.
Also all interest paid on house loan for a rented house is deductible from rent.
Before DTC, if you own more than one property, there was provision for taxing notional rent even if the second house was not put to rent. But, under the Direct Tax Code 2010 , such a concept has been abolished.
9. Tax exemption on LTA (leave travel allowance) is abolished.
10. Bad news for NRIs : As per the current laws, a NRI is liable to pay tax on global income if he is in India for a period more than 182 days in a financial year. But in new bill, this duration has been changed to just 60 days.
This is very unfair to Seafarers. To avoid any income tax, an Indian sailor employed with a foreign ship will have to stay maximum for 60 days in India.
11. Corporate tax reduced from 34% to 30% including education cess and surcharge.
12. Taxation of Capital gains from property sale : For sale within one year, gain is to be added to taxable salary.
For long term gain (after one year of purchase), instead of flat rate of 20% of gain after indexation benefit, new concept has been introduced. Now gain after indexation will be added to taxable income and taxed at per the tax slab.
Base date for cost of acquisition has been changed to 1st April, 2000 instead of earlier 1st April, 1981.
14. Medical reimbursement : Max limit for medical reimbursements has been increased to 50,000 per year from current 15,000 limit.
15. Tax on dividends: Dividends will now attract 5% tax.