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, 27,821 hits)
What will be the impact of Direct Tax Code on
1) PPF
2) Capital gain on Shares bought in 1995
3) Ulip bought in 2004
should he withdraw all his money from ppf account and sell all the shares (bought in 1995) before April 2011 i order to avoid long term capital gain on shares. Please suggest
@Ritesh
1. PPF will still be non-taxable at withdrawal.
2. Long term capital gains will non-taxable still.
3. ULIP you should continue as selling it now will give you less money.
What changes are made finally in today cleared bill today/
@Kak
Please read updated post: http://www.pankajbatra.com/india/new-direct-tax-code-dtc-highlights/ for the changes
very usefull information
i want to know amount invested in life insurance and ulip is now EEE OR EET
@Vinod
As per current bill ULIP will be under EET and pure life insurance will be under EEE.
what is the new limit of investment for tax saving.
@Rakesh
New limit is 1.5 Lakh
@Rakesh
Please read updated post: http://www.pankajbatra.com/india/new-direct-tax-code-dtc-highlights/ for the changes
What is the treatment of HRA , LTA , Medical in proposed Direct tax code bill presented in parliament . Can we get copy of bill submitted in Parliament
The tax slab provided are for which country.. India does not have these tax slab nor they are proposed
What impact does DTC have on sale of long term property?Would indexing cease?
how can a person save max. tax at an yearly income of 500000/-
what will be the limit of LIC premium , NSC, ppf
I invest in share market short term capital on this income and loss what is liability of Income tax may salary income is 2lac 34 thousand per year others 20 thousand per year
and short term gain rs.12 thousand, my saving U/S 88 Rs.one lac what is liability of tax in asstt year 2011-12 , What is period of short term capital and long term capital in sahre market
good one.
thx pankajBatra.
the dtc seems a bit tough on the nri.
however, that may change once the bill is finally discussed by the mp’s.
however, by & large, it seems just old wine.
shud hv done something more for the retired…///
Thanks for this DTC article Pankaj
Very useful and properly compiled highlights
thanks a lot…
is there any tax holidy suggest in dtc and how it can be graps
@Balvant
Which sector you are asking about? Individual, companies or SEZ
senor citizen must enjoy 5 laks ntax exempition.
DO MEN AND WOMEN ENJOY SAME TAX EXEMPION.i.e 2LAKHS?
@Roland
Yes, in new tax laws, men and women both have 2 lakhs tax exemption.
What do the direct tax code say about Search & seizure?
I am retired person wholy depend ing on bank term intererst. does DTC CODE removes
2.5 lakh tax exemption? please reply.
@Roland
No exemption has not been removed.
There won’t be any income tax until 2.5 Lakh income for senior citizens.
if i get surrender value of Lic policy purchased in 2004 (annual premium is more than 5% of sum assured) after 1st apr. 2012 , on which value tax will be charged ?
@Sushil
As per new DTC rules, all insurance policy amount received (where annual premium > 5% of sum assured) will be taxable and added to income.
But withdrawal of any amount of accumulated balance as on March 31, 2011 will not be subject to tax.
it is good info. provided………….
Subsiquent to my earlier quary dtd.6th oct’ 10 please confirm the year in case of non taxability of accumulated balance of insurance policy,is it be as on March’11 or March’12 ?
@Sushil
As DTC is applicable from April’2012. Accumulated balance till March’2011 will be non-taxable.
this tax rule is good or bad if good than which aspect or bad then which aspect plz suggest me some points
@Ashis
This post (http://www.pankajbatra.com/india/new-direct-tax-code-dtc-highlights/) already has all points. Please read through that.
what is the provision of taxability as per DTC under ‘income from house property’in case of having two residential houses, one is self occupied & another is vacant (not let out) ?
@Sushil
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.
does this mean us NRI’s cannot visit India for social trips from 2012?
@Karan
They can visit, but stay should be less than 60 days to make income non-taxable.