The New Direct Tax Code (DTC) is said to replace the existing Income Tax Act of 1961 in India. 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.
During the budget 2010 presentation, the finance minister Mr. Pranab Mukherjee 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.
Again, as per budget presented on 16th March, 2012, Implementation of Direct tax code has again been deferred and won’t be applicable from 1st April, 2012. Also check out changes in taxation in 2012 budget.
Highlights of Direct Tax code
1. Removal of most of the tax saving schemes: DTC removes most of the categories of exempted income. Unit Linked Insurance Plans (ULIPs), Equity Mutual Funds (ELSS), Term deposits, NSC (National Savings certificates), Long term infrastructures bonds, house loan principal repayment, stamp duty and registration fees on purchase of house property will loose tax benefits.
2. New tax saving schemes: Tax saving based investment limit remains 100,000 but another 50,000 has been added just for pure life insurance (Sum insured is atleast 20 times the premium paid) , health insurance, mediclaims 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 scheme (NPS).
3. Tax slabs: The income tax rates and slabs have been modified. The proposed rates and slabs are as follows:
| Annual Income | Tax Slab |
| Up-to INR 200,000 (for senior citizens 250,000) | Nil |
| Between INR 200,000 to 500,000 | 10% |
| Between INR 500,000 to 1,000,000 | 20% |
| Above INR 1,000,000 | 30% |
Men and women are treated same now 🙂
4. Home loan interest: Exemption will remain same as 1.5 lakhs per year for interest on housing loan for self-occupied property.
5. Short and long term gains: 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. EEE and EET: As per changes on 15th June, 2010, Tax exemption at all three stages (EEE) —savings, accretions and withdrawals—to be allowed for provident funds (GPF, EPF and PPF), NPS (new pension scheme administered by PFRDA), Retirement benefits (gratuity, leave encashment, etc), pure life insurance products & annuity schemes. Earlier DTC wanted to tax withdrawals.
7. Education Cess: Surcharge and education cess are abolished.
8. Income arising from 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. LTA (Leave travel allowance): Tax exemption on LTA is abolished.
10. Education loan: Tax exemption on Education loan to continue.
11. Corporate tax: 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: Equity mutual fund will attract 5% dividend distribution tax (DDT). DDT has been removed from debt and non-equity based mutual funds but now dividends on non-equity funds will be taxable in investor’s hand as per his slab rates. There will also be a TDS 0f 10% (20% in case of NRI and companies) if dividend is more than 10,000 Rs for non-equity funds.
15. 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.
An NRI will be deemed as resident only if he has also resided in India for 365 days or more in the preceding four financial years, together with 60 days in any of these fiscal years. Even if an NRI becomes a resident in any financial year, his global income does not immediately become liable to tax in India. Global income would become taxable only if the person also stayed in India for nine out of 10 precedent years, or 730 days in the preceding seven years.
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.
You can download the bill tabled in parliament from below link:
Direct Tax code bill (1.1 MiB, 27,817 hits)
I want to ask for DTC that will HRA,medical component, LTA would be eligible still?
@Amit
There won’t be any deductions for HRA, Medical and LTA in new direct tax code as of now. However, Its applicable from Apr’ 2011. So lets hope some more clarity in that matter comes till that time.
please give me updates on dt code & when i t is applicable
@Chander
It will be applicable from April 2011.
Dear Mr Pankaj,
I have worked in two companies in this financial year.1) April- July 2) August- March(till data).How should the tax be charged and the slabs of tax should be taken for clculating tax.My present company is taking annual slabs for tax calculation (for example 100000 limit 80 C).Is it correct.Wont i be paying less tax and then while filling return ,i will have to pay the difference .Please advise. Thanks & regards, Pravin
@Pravin
Please download tax calculator from this link: http://www.pankajbatra.com/india/income-tax-calculator-india-2008-2009-2010/
You have to add income from both companies in order to calculate total tax.
You must inform your current employer to include income from previous employer for tax calculation. If its not done now, you will have to pay yourself.
in PY 2009-2010 my income from sale of shares is 78000. How is this going to affect my tax liability. I am a salaried person with salary income of 400000.
@Pramod
Tax computation for income from sale of shares depends upon how long you kept shares with you. Taxation is different for long term and short term capital gains.
Hi Pankaj,
I have LIC unit link policy whose current value is Rs.210,000/-. If I sell it off now then will be the amount taxable?
@Suman
As of now, returns from ULIP are tax free except pension plans.
Hi Pankaj,
I have a couple of questions.
1. Can you elaborate on what is meant by EEE and EET method of taxation
2. From Apr 2011 what will be the policy for education loan and housing loan repaymnets?
@Mukund
E means Exempt, T means Taxable.
First letter is for investment stage, 2nd for Earnings stage, 3rd for Withdrawal stage.
Almost all of the investment schemes are exempt at investment stage, slowly govt is moving all other towards EET or ETT.
As of now, there is a talk to remove Housing loan benefits in DTC, but there is not much details out, it be clear in future when Govt comes out with details.
Dear Pankaj Batra
I am salaried person in a psu bank and have opted pf not pension
Due to my health condition i wish to retire and was waiting for bank wage stllement outcome which is due on 15th april 2010.
WHat would be my tax liabailty on my pf fund and employer’s pf fund and gratuity and leave encashment. WIll it be taxed if i opt to retire after 1st april 2010.
Please guide me
@Sanjay
If you have more than 5 years in EPF account, then the redemption is non-taxable. Leave encashment amount is also non-taxable at time of retirement or leaving the job. Gratuity is non-taxable upto Rs 3.5 Lakhs. Rules are same after 1st April, 2010 also.
I am salaried person.
I have two questions:
1. I invest in shares. In 2009-2010 financial year, i earned Rs.78000 in intra day trading and earned Rs. 15000 from the shares which i invested 1 year back. In between i received many dividents of Rs. 1500 from companies. Should i pay tax for this income as well? And how much?
2. Do i need to pay tax for the interest received from Saving Bank Account, NSC etc?
@Suman
1. Capital gains from more than one year investment into shares (where STT is paid on transaction) is non-taxable.
For capital gains with less than one year investment, its charged @ 15%.
Dividends from shares are tax free.
2. Interest on Saving account or NSC is taxable at normal tax slab rate, according to your salary.
Hmm,
Fixed deposit interest, just curious is it Ordinary Income or income from other sources ?
Makes a big difference in how one is taxed
Pankaj, Thank you for explaining DTC in simple manner
Can you excplain little bit about income from Farming
Scope of income is expanded to include value of perks, gifts, profit in lieu of salary and capital gains but excludes farm income.
If say i earn 20lk from farming ( the crop belongs to vegetable criteria) and i have no other income am i still need to pay tax on it ?
@Vinod
Income from agricultural land is not taxable at this point. More clarification will only come in Union Budget 2011.
Thank you so much for the clarification
Pankaj,
My understanding is that income earned as interest from fixed deposits are to be taxed @20% flat . Is that changing ?
@Drprab
Income earned from interest is taxable at normal tax rate in which a person all. It can be zero or 10-30% based on other income.
20% TDS is only deducted if PAN is not provided by investor.
Hmm. I thought that in the new Direct Tax code , All interest is considered as income from other sources and incurs a flat 20% tax. And u cannot use this income to apply any deductions.
I am totally lost on how the code states it ?
Hi Pankaj,
Nice article on DTC. Have a basic qn. Can we set off past Short term capital loses filed say in 2009 and now in 2010 against salary income for fy 2011-12? If not how do we set off past ST loses after DTC comes into effect as capital gains is merged with salaries under single head called ordinary sources. Reponse will be greatly appreciated.
Thanks
Ravi
@Ravi
A short-term capital loss can be set off against any income under the head capital gains (whether short-term or long-term) and can also be carried forward for eight years.
Details of taxation details for DTC still not out so we cannot comment on this at this moment.
Dear Sir.
Once this is in force wef 1/4/11-would there still be indexation for capital tax gains?? If not what about very old properties which were purchased for lacs and now sell for crores.That would be a hefty tax to pay and even investing in bonds to save tax is only Rs50,00,000 per annum , so one would have to pay tax for the difference.
@Mahesh
Still detailed explanation of DTC has not been released and it will be out by July end this year. Once that is out, we will know the indexation and capital gain taxation rules.
Hi Mr.Batra.
Quick query on rental income. If you let out a portion of the house you are living in for rental purposes , can you claim a portion of property taxes as deductions and how would you declare the income. I was not sure how the 30% or the proposed 20% maintence deduction will work in that case.
Will appreciate your response.
@Drprab
Yes, you can claim maintainence deduction, its a percentage of rental income and not the house value.
Thanks Mr Batra , how about taxes ? can we claim a portion of it
@Drprab
Yes, you can deduct proportionate house tax on rental income.
why are some of the things striked??
@Siddhartha
Earlier, the striked items were also a part of Direct tax code, but with latest notification some parts have been changed.
Dear Sir,
I have two houses First self occupied No loan on this house Also No income from this house ( As self occupied)
Second One given On rent Hence Earning income from this house
I have two queries
1) Which Form Should I use For filling return For A.Y. 2010-11 ITR 1 OR ITR 2 ?
2) While claming Housing loan interest Can i claim actual amount ( i.e more than 1,50,000) Pl. calrify?
@Rajendra
1. You have to fill ITR 2.
2. You can claim any amount (even more than 1.5 L) for home loan interest payment, if the same house has been given on rent and you show rental income in your return.
Mr. Pankaj Batra I have read all your answers to all the different queries raised by different persons. Your answers were quite upto point. I have came to get many of my own doubts solved by reading them. Good job……
@Esha
Thanks a lot!
What about the facility of complete 100% INCOME TAX FREE for the ST (schedule tribe) category persons working in the state of Tripura?
@KAK
Exemption is only on income arising in those areas or interest on securities or dividends.
mr pankaj
ye dts bilkul galat hai, tax limit minimum 160000 hai. jisse medium family mare jayenge. aamiro ke liye limit exceed kiya gaya hai bt what for poors?
Annual Income Tax Slab
Up-to INR 160,000 Nil
Between INR 160,000 to 1,000,000 10%
Between INR 1,000,000 to 2,500,000 20%
Above INR 2,500,000 30%
jo jyada earn kar rahe hain unhe tax ka load kam hi hai
minimum slab 300000 hona chahiye.
it is totally unfair with medium classs.
what will be its impact on Insurance and Investments
Hi pankaj
If some one has bought shares in 1990 , should he sell those before April 2011 in order to avoid tax on long term capital gain which will be imposed if he sells after April 2011
@Ritesh
That change has been scrapped and now long term gains still will be non-taxable.