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, 27,816 hits)
Sir,
Please clarify what is the maximum amount that can be carried over
to RBI Bonds for purpose of LTCG on property when capital gain is
itself over 3crores? Will indexation apply as on 1Apr 2000 from this
year as per DTC(because this can make a huge difference in tax?
Kindly reply each query individually.Thanks!
@Mani
Maximum amount that can be invested to capital gains bonds u/s 54EC is 1 crore (50 lakhs is max limit per financial year and it has to be done in 6 months from sale of property, so if 6 month period fall in two FYs then 1 crore can be invested).
After direct tax code, capital gain computation will have to be done with indexation with base year as 2000-01. Fair market value as on 1st April 2000 will be considered as purchase price. After this computation, whole gain will be added to taxable income and taxed as per your slab rates.
Hi Pankaj,
It kinda off-topic but related to the tax impact under the DTC. What are best govt issued tax savings bond that you would suggest both for Indian citizens and NRI’s? Thanks.
@Ravi
What sort of tax saving bonds you are looking for.
Pankaj – I am looking for any kind of long-term bonds with a good rate of return and preferential tax treatment.
@Ravi
You can invest in long term infrastructure bonds (issued by IDFC, L&T, PFC etc). Duration will be 10 years and interest around 8%.
But max exemption available will be 20,000 only.
Sir,
Sincere thanks for the information.Now the Q arises as to whether it would be wiser to effect transaction during FY2011-12 than FY2012-13. If the Capital Gains is high(over3crores)will it be better off to be taxed at 20% (after providing 1.5C for new property, 50+50L for 54EC) than be taxed next year based on income slab (even after taking indexation base date as 1Apr 2000) Which in your opinion is Tax-smart?
@Mani
Yes it will be better to execute transaction in FY 2011-12 before DTC comes into picture. It will save you 10% of income tax.
Sir,
I heard that there will be no effect for seafarers. Please clarify. Some news from websites say so. Thank you.
@Sekhar
Can you please share the details or the link where you got the news for seafarers.
Hi Pankaj,
its a nice article but I think you missed out completely on the the NRI segment.
Clause 4 of New Direct Tax Code says
4. (1) An individual shall be resident in India in any financial year, if he is in India—
(a) for a period, or periods, amounting in all to one hundred and eighty-two days or more in that year; or
(b) for a period, or periods, amounting in all to
(i) sixty days or more in that year; and
(ii) three hundred and sixty-five days or more within the four years immediately preceding that year.
(2) The provisions of clause (b) of sub-section (1) shall not apply in respect of an individual who is—
(a) a citizen of India and who leaves India in that year as a member of the crew of an Indian ship; or
(b) a citizen of India and who leaves India in that year for the purposes of employment outside India.
Although this might appear tricky but it clearly says the following which is exactly same as mentioned in Income tax act, 1961
1) Anyone who has stayed for more than or equal to 183 days outside India will be considered as NRI.
2) Anyone who has stayed in India for more than 365 days in 4 financial years and has stayed in India for 60 days or more will not be considered as NRI except in cases where a person leaves India for the purpose of employment outside India or joins as Crew member of an Indian Ship. This means that even if you spend 365 days+ in last 4 years and spend 60 days + in India in that financial year, you can still be considered to be an NRI provided you leave India for the purpose of employment outside India or Join as a Crew member of Indian Ship. If at all you are outside India without any emplyment for other purposes like Higher studies, leisure etc, you will not be considered as an NRI.
Hi Pankaj,
Great article. 2 quick questions.
QUESTION 1
========
Previously, when NRIs became resident, they would be treated as RNOR (reisdent but not ordinary resident) for 2 further FYs (provided they were NRIs in 9/10 prior years & sum of visits in last 7 FYs <730 days).
My understanding is that RNOR is being removed from FY2012/13. However, the government is allowing residents an exemption for 2 further years (just like RNORs).
Is this correct?
QUESTION 2
========
My undertsanding is that the benefits of becoming an RNOR is :
1. You don't pay income on global income (just the Indian portion),
2. You don't need to convert your NRI a/cs to resident A/Cs right away.
Is this correct? And will these benefits be available to people the government is allowing a one-off exemption of 2 years to on 1 Apr 2012?
Many thanks in advance
@Sib
1. Under Direct tax code, ‘Resident Not Ordinarily Resident (RNOR)’ category has been removed to simplify the tax laws. After DTC, only residents and non-residents status will be there.
After DTC, NRIs who become residents may not be required to pay tax on their global income, if they satisfy any of the below conditions.
a. they have been a non-resident in India in nine out of ten preceding financial years; or
b. they havebeen in India for less than 730 days, during the seven preceding financial years
2. While status of individual is that of RNOR, his foreign income is not taxable in India and NRI accounts can also be kept during this time period.
Hi Pankaj, there is a rumour that sea farers will still be exempted from this limitations of 62 Day, is it true???
Please also advise what sea farers can do as I dont want to migrate to any other country like Canada or Australia where the taxes are high but you get some sort of social securities in return????
@Manoj
I don’t have such information. Do you have a relevant section in news somewhere?
I only heard it as a rumor but not sure where it spread from, but can you advise us what sea farers should do as we are away from families when we are on ship so we have to come back to India for at least 4 to 6 month per year which is obviously above then 60 days.
We can migrate to better countries like Canada, Australia where the taxes are around 40% but in return we get social securities, free education for kids, medical cover and many other benefits but emotionally its dosent suits to many of us.
regards
@Manoj
Moving to foreign countries is a personal choice, which some people take.
India has still a low rate of income tax and there are more opportunities in India now than anywhere else in world.
My income is less than 5 lacs and i am sr citizen. my pension and interest income less than 5 lacs. Whether i have to submit 15 H/or any other form to the bank and request them not to deduct Tds @10% of interest income. Earlier 15 H was not accepted since i was above 60 and not 65. Now this condition i removed and all are treated as sr citizen above 60 treated as sr citizen for the purpose of income tax.
@EliasMiranda
You still will have to submit form 15-H to bank to request them not to deduct TDS on bank interest.
Hi … I was not clear about the Housing Loan part. Are you saying that we are not getting exemption for the interest paid for the housing loan under DTC? Thanks.
@Anil
You will be getting same exemption on home loan interest even after DTC implementation.
Thank you very much Arun Goyal for your message dated June 19th, however I still have a doubt under Clause 4 (2) (a). Does this apply for sea farers joining foreign ships also?
Hello Pankaj,
Iam an IT professional and i do browse so many tax blogs but i found your blog interesting and informative
I would like to know about short term capital gain tax on shares,how the broking firm calculated?
If we transfer shares from one broking firm to other broking firm will it fall into the STCG tax category?but the shares fall into the LTCG tax because i hold for more than 1 years or so
@Sunil
If you transferred shares from one brokering firm to another it should not fall under STCG, as sale of shares have not been done.
If overall holding of shares has been more than a year, it will come under LTCG.
I agree with you but how come the broker come to know that the shares which i hold is more than one year?
Tell me one thing,according to the DTC,long term cap gain tax is not exempted from the tax,let me know how much % they will deduct from the profit?
@Sunil
if you have bought shares from same broker, it will have data about your transactions, so it can show your long term and short term gains.
Even after direct tax code, long term gains from shares/mutual funds are exempted from income tax, if STT has been paid on transactions.
your blog is one the best in the biz
If i earn 15lac from the sale of shares in the year 2013 and i think DTC will get effected from April 2012,so tell me according to the income tax slab they will cut the tax,i mean 30% on the profit?please explain because most of the members of the blog would be interested to know the same
@Sunil
If you earn 15 lacs from sale of shares (listed on Indian stock markets) in 2013, STT has been paid on transactions and these have been kept for more than a year, then no income tax will be payable. As this will be long term gains from equities, no income tax on it.
But if these are sold before a year, half of the gains (profit earned) will be added to your taxable income and taxed as per your slab rates.
In case of equities, no tax is deducted at source (TDS), you will have to compute and pay tax yourself.
Thanks a ton sir,this blog is the sea of true knowledge,i would like to know if the demat act is in the name of my wife who has no income,she is a housewife,if i sold shares worth rs 15 lacs which fall into the short term cap gain tax,how much tax would my wife have to pay even though she has no income,i think above 8 lac income tax slab womens have to pay 30 percent but my wife is a housewife and has no income,does income from sale of shares fall into the income category,does she has to pay tax?if yes then how much?to minimize the loss on the profit should i open multiple demat accounts in the name of non working family members.pls help.
@Sunil
If you are investing your money in name of your wife or any other family member (who does not have any income), then gains will be taxable in your hands and not in your wife’s name.
Income tax on short term gains from shares is 15%, if STT has been paid on transactions.
Dear Sir,
I dint get you,”then gains will be taxable in your hands”
I will open an demat and trading act in the name of my wife who has no income,if she earn profit from the sale of shares,she has to file an IT returns?
According to the DTC LTCG tax will be tax according to the income tax slabs,if she earns 25 lacs from the sale of shares,only 12.5 lac will be tax and that comes under 30% tax bracket,aim correct?
@Sunil
If you invest your earned money through your wife’s name, gains out of it will also be taxable in your hands.
In case your wife gets a scrutiny call and she does not have any income source but still heavily investing into stocks, it will be an issue.
Under direct tax, there is no income tax on long term gains made from stocks (stocks kept for more than a year).
If stocks are sold before a year, half of the gains will be added to taxable income.
You are right,check this http://www.onemint.com/2011/05/01/dtc-impact-capital-gains-on-sale-of-shares/
It clearly says that LTCG tax is taxed according to the tax slabs
If my wife earns 25 lacs from the sale of shares,if we follow the above link and calculate the tax,then how much tax my wife would have to give,30% on 12.5 lacs?
What would happend if my wife dint file an IT returns?because so many investors dont follow the laws and rules…..
IF MY TONEOVER IS abou 60 LACS to 65 . HAVE I TO PAY SOME 8% TAX OR LIKE AND INCOME LOSS 10 THOUSAND THAT SOME THING ? ? OR WHETHER AC IS SUBJED TO AUDIET ? CAN U HELP FOR THAT QUREY ( PRAKASH ) BEACUSE I HAVE TO PAY IT RETURN SO PLS HELP ME SIR JI
thanks & waiting for ur help .
@Prakash
As your turnover is greater than or equal to 60 Lakh, audit will be compulsory.
I am trading in stocks with a broker.there is no investment and morning i buy shares and by before closing hours i sell it sometimes i earn few hundred rs and some times i lose. by doing this for whole year the t. o. may cross 60 lacs but the earning is may be 5000 rupees whether im subjected to audit .
@EliasMiranda
In case of intra day trading turnover for tax audit is considered as the sum of positive and negative differences i. e. sum of profit + loss.
For eg: if you have profit of Rs. 45 lacs and loss of Rs. 20 lacs in day trading then turnover will be considered as Rs. 65 lacs and liable for audit u/s 44AB.
Regarding point 2:
Where the Employee Provident Fund (EPF) is falling…. in the 50000 mark or in the 100000 mark
@Atanu
EPF will come under 1 lakh, new 50,000 is only for insurances and child tuition fees.
Hi Pankaj
Gathered more info from your article than many of the other articles appearing on the DTC .
Can u pl. clarify:
1)If a person (employed overseas in oil field that has typical 28 days on and 28 days off)is NRI for last 9 of 10 years under the present IT-Act 1961
but will stay for more than 60 days in financial year 2012-13 in India
and has stayed for >730 days in the last 4 financial years.
Thanks
Sundar
@Sundar
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.
Thanks Pankaj for the quick response.
So I will be taxes.
Am NRI for 9 of last 10 years but stayed in the last 6 years at 180 days each year>>
Can you suggest some options to legally avoid tax(do not come to India for vacations is what comes to mind)…
Are they giving a grace period for application for long term NRI’s out of India on employment?
Thanks,
@Sundar
Only option to avoid tax on global income, is to follow this conditions.
Some part of DTC may gets changed once its finally declared in Budget 2012.
Thanks again.Will keep my fingers crossed ..Either change my job or try to have residency in Dubai!
Regards..
I am on the same boat, 28 days on 28 days off, looks like these corrupt politicians will not allow us to bring our hard earned money home. However I heard that they are considering some special category for Sea men but that also on Sea men working on Indian Flag ships. So even if we have CDC/ sea men book but not working on Indian Flag ship its not going to help us, however Seamen is a Seamen so that should open some doors for us may be a court case protesting against discrimination???
Other options are residency in Dubai, Thailand, Malaysia or best choice is Canada in these countries even if you pay tax more then what we have to pay in India we will get it back in form of social securities, medical cover, education to kid, at least half of your existing salary if you loose job but in India we will be paying taxes just to pay expenses of peoples like Rahul or Sonia Gandhi or fill there foreign accounts.
Yes i fully agree..The $ that the NRI brings to India is very welcome but NRI is treated as Not Required Indians..
Hope it spares guys like us on 28/28..
When will we know for sure..Around Feb 2012 maybe at Budget time?
Friends- Download the DTC bill & you will see clearly that Clause 4 ,Section 2 clearly states that as long as we leave India for employment & do not stay in India for more than 182 days in ayear our earnings will be tax free. So if we work on rigs, Foreign flags we will be able to use this section & income will be still tax free.Relax.
hi pankaj
we have a property in our partnership firm which has been redeveloped and we have received temporary possession..if the partnership firm is dissolved and the property is taken over by the retiring partner as part of his share in the assets of the firm will there be short term or long term tax payable by the firm on the same..
@De
We are not very sure about taxability in case of partnership firm as We are more focused on individual’s taxation.
We would advise you to consult a tax professional or experienced CA in this case.
Dear Pankaj
I have gone through various post, but still unclear about the income tax on Indian who are working on foreign flag ships. I read from some other article that if a Indian working on foreign ship for more than 183 days in a year he will be considered as NRI, does not matter he spent time in Indian water or outside Indian water.
Please clarify and FYI read this http://www.assettreat.com/2010/09/new-direct-tax-code-effect-on-non.html
@Nilesh
You may read response on similar question on http://www.socialfinance.in/questions/63/seafarers-taxation
OK, but what is the rule for SEAFARER working on foreign ships before DTC?
Is it true that Indian working on foreign ship for more than 183 days in a year he will be considered as NRI, does not matter he spent time in Indian water or outside Indian water. Please clarify. Thank you very much.
Nilesh
@Nilesh
Before DTC, if a person is in Indian territory for more than 182 days , all his global and Indian income would be taxed in India.
If its less than that only Indian income would be taxed in India.
Dear Mr Batra, Your information given here is absolutely misleading.
Please read below- These lines are taken from the link and clearly says that a person working on foreign ship entiled to take NRI status, does nt matter in indian water or not. So i request you not to confuse and mislead people on DTC and income tax.
http://www.dgshipping.com/dgship/final/tcsrep/Chapter_2_2.htm
Personal Income Tax on Seafarers
An Indian seafarer who is employed on a foreign vessels for 183 days or more in a year is entitled to non-resident status as per Section 6 of the Income Tax Act, 1961 and therefore eligible for income tax exemption. The CBDT has however held that an Indian seafarer who is employed on foreign-going Indian vessels will be entitled to such status only if he spends 183 days or more outside Indian territorial waters. In other words this means the amount of time spent at Indian ports or in Indian territorial waters will be reckoned as spent in India, neutralising the claim of such a person for non-resident status.
The Board has also held that a seafarer employed on Indian coastal vessels is not entitled to count the period spent on board such vessels towards non-resident status and the emption from tax is hence not available to him.
@Nilesh
Thanks for correcting and showing difference between a normal NRI and those working on ships (seafarers).
Nilesh,
Thanks for the Info however there is still a loop hole as this section 6 say ” Indian Sea Farers” and ” foreign Going Indian Ships” does it means the persons who holds Foreign CDC they will not be entitled and secondly what abt the foreign Flag ships. Its again a grey area I think we will be able to use it in our favor???
Regards
Can we get tax exemption under Section 10(10)D which we are getting tax free for partial withdrawals, surrenders and Sum Assured received under the life insurance plans
@Raju
Sum received after maturity of insurance or at the death of person would still remain non-taxable.
But it won’t be applicable to policies which has been issued on or after April 1 2003 and if the premium paid in any of the years during the term of the policy is more than 20% of the sum assured.
Premature and partial withdrawal may be taxable as per current rules (depending on when its withdrawn and may vary from policy to policy)
What will be taxation for RI on Short term gains andlong term gains by selling unlisted securities out of India (USA,Europe and HK)?
@Salil
Short term gains (kept for less than three years) on securities not listed in Indian exchanges will be added to your taxable income and taxed as per slab rates.
Such long term gains (kept for more than three years) would be taxed @ 20% after indexation benefit.