Tuesday, September 7

Direct Tax Code - uncoded

The Direct Tax Code (DTC) Bill, which will replace the existing Income-Tax Act, 1961, has been presented in the Parliament and will be enacted as a law if approved by both Houses, effective from 1-April-2012.

Income Exemption limits are as follows:
For men:
Upto Rs 2.0 lakh (Raised from Rs 1.6 Lakh) NIL*
Between Rs 2.0 Lakh and Rs 5 Lakh: 10% (From Rs 1.6 - 5 Lakh)
Between Rs 5.0 Lakh and Rs 10 Lakh: 20% (From Rs 5 – 8 lakh)
Above Rs 10 Lakh: 30% (From Rs 8 lakh)
*For women: Raised from Rs 1.9 lakh to Rs 2.0 lakh
The minimum tax saving is Rs 4000 (Rs 1000 for women assessee) and the maximum tax saving is Rs 24000.

Deductions under Sec 80C has been enhanced to Rs 1.5 lakh (From Rs 1.2 lakhs currently). However, the basket of investments has been modified for deduction under this clause.
Investments include:
a) Contribution to PPF
b) Contribution to PF
c) Contribution to superannuation fund
d) Contribution for New Pension Scheme (NPS)
Sum a – d) Maximum of Rs 1 lakh, as eligible investments

e) Insurance Premium
f) Tuition Fees
g) Medical Insurance Premium
Sum e – g) Additional deduction of Rs 50000

Thus, the current deductions under Section 80D with respect to mediclaim premium up to Rs 15,000 for self and an additional Rs 15,000-Rs 20,000 for dependent parents shall stand redundant once the new DTC comes into play with the maximum amount of deduction for mediclaim, insurance premium and tuition fees being restricted to Rs 50,000 under Sec 80C. This can still be worked around to plan the tax during the year.

Items falling outside the ambit of Sec 80C deductions:
Equity Linked Savings Scheme (ELSS) Mutual Funds (will now attract DDT of 5%)
Unit-linked insurance plans (ULIPS) (will now attract DDT of 5%)
Five-year tax saving bank fixed deposits
Infrastructure bonds (was introduced with an additional deduction of Rs 20,000, no mention in DTC).
Repayment of principal on housing loan
The proposals continue to allow deduction on interest repayment of up to Rs 1.5 lakh on housing loans.
With medical expenses going off the roof, the DTC proposes to enhance the limit of reimbursement made by an employer for medical expenses incurred by an employee from the current Rs 15,000 to Rs 50,000. DTC is also set to introduce an allowance payable by an employer to an employee to meet his personal expenses.

Capital gains
Long-term capital gains arising from such investments in Equities and Mutual Funds continues to be tax exempt even under the new DTC.
Short Term Capital Gains (gains made on listed equities or equity mutual funds held for a period less than one year), the DTC proposes to tax the same at the rate of 5% or 10% or 15% depending upon the individual tax payers’ tax slab of 10% or 20% or 30%, respectively.

Download the DTC Bill

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