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.
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, 28,348 hits)
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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.