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)
Hi Panjay – In one of you reply you say that NRI is 183 days outside india but in other reply you say that NRI is 59 days outside India. Which is correct ??
In income tax website i dowloaded the DTC pdf file it states that 183 Days outside india is NRI sould you please clarify as it would be helpful for me and others to stay or not to stay abroad next financial year
@Pradeep
Before DTC (direct tax code) is implemented, if a person stays in India for more than 180 days is considered resident Indian and all his income from India and abroad is taxable in India.
After DTC, this has been reduced to 60 days.
Sir,
If we have bought ULIPS before 1st April 2012 will it be taxed on maturity after the DTC is implemented.
@Rocky
If annual premium does not exceed 5% of sum assured in any of the policy year, sum received at the end of policy end or upon death will be non taxable.
But if this is not the case, amount will be taxable on withdrawals.
Hi Pankaj
A current NRI’s global income becomes taxable if:
1) He resides in India > 60 days
Exempt if he is :
1) NRI for > 9 years in last 10
OR
2) Stayed for < 365 days in the last 4 financial years
Pl.confirm if it is OR or AND in the above for exemption
Also, any idea if postponement of implementation will happen/exemption can be given for 2/3 years for guys that are NRI's for long
Thanks
@Sundar
As of now the number of days in years are 180, which will change to 60 after direct tax code implements.
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.
60 days conditions will be exempted if any of the cases: not stayed for 9 out of 10 precedent years in India OR less than 730 days in preceding seven years OR less than 365 days in last 4 financial years.
Thanks..So if a guy stays in India > 60 days in 2012-13 but has been NRI under IT Act 1961 for the last 9 of 10 years then his global income will not be taxed,though he has stayed in India for >730 days in last 7 years .
Have i understood correctly..These things seem very complicated!!
Thanks,
@Sundar
Yes, your understanding is correct.
pankaj ji
there is no other minimum exempition limit for women?
and ha the sec. is also changed in DTC na?????
@Sagar
For both men and women, there will be nil tax for first 2 lacs of taxable income.
And 1 more Qes sir,
what is difference b/w unrealised rent and arrears of rent?
and when we get the diduction of 30% ?
and the logic behind getting 30%
@Sagar
Unrealized rent is rent receivable but not received in the financial year.
Arrears of rent is rent received from previous years in current year.
30% of rent received is deductible from taxable income towards maintenance of house.
Hi Pankaj ..
Thanks for all the info .. this site was of real help to me. Im planning to start investing(Begineer) on mutual and equity funds and SIP. I have doubts w.r.t to investing.
Please help me in understanding the following :: 1) Is this the right time to invest in this funds
2) As per DTC , pls confirm if all investments made on the above funds will not be part of tax exemption ? and incase of withdrawl will there be tax exemption for investments on above and fixed deposits and postoffice savings
3) could you suggest a better portfolio diversification for me
4) could u brief on EEE and EFT ..
Thanks in Advance
Regards,
Krishna
@Krishna
Your query has been already answered on http://www.socialfinance.in/questions/1642/tax-exemption-on-new-savings-plan
Hello Pankaj,
Whatever you have explained for capital gain Income (From property sale) above, how is it different from current capital gain law. Can you plaese elaborate a little more on that.
I am always confued how they calculate the taxable income.
Also, what will be the best way to save max tax and money for the same in DTC?
Please suggest!
Regards,
Rani
@Rani
As of now long term gain are taxed at flat rate of 20% after indexation benefit, but after direct tax code, gains after indexation will be added to taxable income and taxed at per the tax slab.
So maximum tax percent will be 30% now in case one falls in uppermost bracket. This is extra 10% tax payable for most of the people.
Tax saving rules from capital gains will be same as per section 54, 54F and 54EC as they are as of now..
I invest in PPF for me and my wife every year – full 70k rupees. Should I continue to do that? The only incentive i had was there is no tax on withdrawal also. Please suggest..
@Amit
You can continue investing in PPF.
From next year, this will be one of the few options for investment to save income tax.
HRA excepmtion is still continued with Revised Direct Tax codes?
@Lokesh
Yes, as of now HRA is continued in new revised direct tax code.
Thank you so much Pankaj.
what will be the tax rates on lottery income. will it be taxed at same flat rate of 30%?
@Vijay
Yes, lottery prize income would be taxed at 30%
Hi Mr. Pankaj Batra.
Thanks for all the useful info. Just one query. Being orthopaedically Handicapped, I am till now eligible for deduction under Section 80 (U). What’s the provision available under DTC pl?
@Padmaja
As there is no declaration on 80U in direct tax code, it is likely to be continued as it is.
Hi Pankaj,
Nice Article. I wanted to know the benefits on interested paid on the “non-self occupied” property.
thanks,
Ashutosh
@Ashutosh
For non-self occupied property, all interest paid on house loan will only be deductible against rental income shown.
will the company dividends be exempt as is the case now
@Anil
Most probably, dividends from stocks will continue to be tax free under direct tax code.
Has DTC similar provision for offsetting long term capital gains from sale of house/land property by investment in NHAI?REC Bonds ETC
@Anil
As there is no change reflected in direct tax code for section 54, 54F and 54EC, this is likely to be continued as it is.
Hi Mr. Batra,
A lot Cdn seniors who visit India in winter(snow birds) are anxious about the new DTC clause re. NRis and new provisions. I even contacted Indian embassy and they referred my concerns to an outside entity. I think even they don’t even know. My understanding reading some web-sites is that they new law comes into effect 2012, farming income is not taxable and that two resident requirements have to be met: A) One has to stay more than 180s in a year, B) stay in India more than 365 days in the previous 4 years and stay 60 days in a year.
For example if my senior citizen grandparents visit India every year for 5.5 months, how are they affected by the DTC? Thanks
@Baldev
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 180 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.
180 days conditions will be exempted if any of the cases: not stayed for 9 out of 10 precedent years in India OR less than 730 days in preceding seven years OR less than 365 days in last 4 financial years.
In case your grandparents does not fulfill above conditions, their whole income (global and Indian) would be taxable in India.
Thanks Mr. Batra,
So to be clear, an NRI can’t stay 365 Consective days(1 year) in India with in the last 4 years to be deemed resident of India(for Income Tax purposes)? I hope they(the authorities don’t count every trip.
@Baldev
All trips to India will be counted and total number of days spent in India in all trips combined will be used.
@Mr. Batra,
Oh, oh bad news!
You wrote,” All trips to India will be counted and total number of days spent in India in all trips combined will be used”.
Suppose my NRI relatives visit India two consecutive years, each time 6 months, then they will have used their 365 exemption and on their 3rd trip they’ll have to show their world income? Do I understand this correctly. This is what lot of seniors are afraid of. So many westerners of Indian origin visit India in winter(some every year) and almost all inject so much money into the local economies, I think this is a short-sighted move on the part of the govt.
Thanks again
dear mr. pankaj,
i am a seafearer by profession.
i have booked an apartment in mumbai on my name recently. all payments have been done without a loan and the house has been registered on my name. my question is that if a person decides to sell this property, i have heard, that he has to invest in some other immovable property within an year(or within the financial year???) of the sale.
but if he exceeds a year, he shall be liable for a proper income tax according to the regular slabs. is it correct???
also are there any exemptions on tax if i decide to transfer the same property on my parents name? or is it considered as a normal sale of property and the normal rules will apply?
lastly can you please provide me a link so that i can understand about the rules and taxation if i decide to rent out the flat…
i am kinda novice in all this.. please help…
@Kanak
If a house is sold after keeping it in your name for atleast three years, it will generate long term gains. Income tax is payable on this gain @ 20% with indexation benefit.
This income tax can be saved by investing into a new residential house property (u/s 54) or into capital gain bonds (u/s 54EC).
Under section 54, new property must be purchased within two years from sale of old one, or if construction is done, it should be completed within three years.
In case its not a long term gain (sold before three years), whole gains will be added to taxable income and taxed as per slab rates. There is no provision to avoid such income tax.
If you transfer property to your parents, it won’t be considered sale but a gift and no income tax would be payable on this transaction.
If you decide to rent out flat, rental income would be added to you taxable income (after 30% deduction towards maintenance) and taxed as per normal slab rates.
thank u for your response…
but i am still a bit unclear at a point…
the apartment i have booked is under construction and will be completed till 2014.
now if i decide to sell this flat before posession(within 3 years) and again invest in some other property, now am i liable to income tax if i invest this whole amount gained during the resale of the flat?
@Kanak
Three years duration start after possession and registration of house in your name. So if you sell it before 2017 (three year after possession), it will be a short term gain.
You cannot save income tax on short term gain, no matter wherever you invest the gains amount into.
I have recd.maturity of lic policy(New jeevan dhara plan) which was purchased on.2001-02
on single premium basis.Rather than going into Annuity option i recd.full surrender value of Rs.50000/ .have this amt. is to be included in my income for tax purpose? pl. guide.
Thanks.
@Sushil
As per policy terms (http://www.licindia.in/pension_plans_004_benefits.htm), At maturity the policyholder can encash up to a maximum 25% of the maturity proceeds as a tax-free lump sum.
So as you are surrendering this policy rather than taking annuity plan, this sum would be taxable and will be included in your taxable income.
Thanks pankaj
But my policy is New jeevan dhara plan (table 145) not New jeevan dhara I (table 148).In policy bond also condition of 25% as tax free maturity proceeds is not mentioned.Now will full surrender value to be added in income? pl. guide.
Thanks.
@Sushil
As its a pension plan, the gains received at surrender would be taxable fully.
Dear Pankaj ji
I have Money Plus policy of Lic which i purchased on june’2006 at annual pre.10000/.Sum assured is 100000 & policy term is 20 years.Now i want to surrender this policy because of need of money.Will proceed recd. as surrender value be taxable ? As per present I.Tax act this should be exempted u/10(10D). Pl. Confirm.
Thanks a lot!
.
@Sushil
As per section 10(10D), any sum received under an insurance policy issued on or after the 1st day of April, 2003 in respect of which the premium payable for any of the years during the term of the policy exceeds twenty per cent of the actual capital sum assured, would be taxable.
As your annual premium was less than 20% of sum assured and you have already paid five years premium, your surrender amount would be non taxable.
is the ppf at its maturity exempt from income tax or its taxable at its maturity?
@Brij Mohan
As of now, PPF amount is non taxable at maturity. No Tax is payable on the interest earned on PPF account.
Hi Pankaj,
Thanx for this excellent platform to help others and that too without cost…..
I have one query reg LTA…Im working in a PVT organisation and had claimed my LTA for the year 2010, As i heard that i can save tax by claiming two LTA”s together so i dropped my plan to claim LTA(by providing supporting bills) this year and planned to claim it next year for the year 2011 & 2012 together.
But now as i again heard that DTC will be applicable w.e.f 01 april 2012 the will i be able to claim tax free LTS for the year 2012 also and also tell me if 2011’s LTA portion will remain tax free if DTC gets implemented in 2012.
Pls do reply…
@Kartik
Only one travel can be claimed in a year. And maximum two such travels in a block of four years.Current block is Jan 2010-Dec 2013.
As you already claimed in 2010, you can now claim only once in 2011-2013. So now you claim either 2011 travel or 2012 travel, not both.
Direct tax code may remove LTA exemption, so I would suggest you to claim LTA before 31st March, 2012.