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, 28,348 hits)
DTC is going to be implemented from 1april 2012 . according to revenue secretary , government is going to lose how much in 2012-13?
DOES THE DIRECT TAX CODE CHANGE THE FORMS 15G, 15H? IF SO IN WHAT WAY /
@Roland
Form 15G and Form 15H are used for averting the TDS deduction on interest earned during the financial year on fixed deposits in Banks. These should not be affected by DTC.
agricultural income to be taxed..
@Shivkumar
Exemption of Agricultural Income under the New Code will be continued.
.i do not agree to t you. can you tell me why do you want that agricultural income should be taxed.you must be aware that most of the GDP contribution come from the agricultural in India. But India,s farmers are not being provided as much facilities as they deserved..they are still suffering losses. if their income is to be taxed then feel more difficulties in producing crops. so it is not a good idea.
I do support tax on agricultural income. It is not the poor farmer who is benefitted by this exemption, but the big politicians and the rich people with huge agricultural land, benefit by this exemption by showing income from doubtful sources as income from agriculture. This exemption remains only because of strong lobby of such people. If the Govt. wants the poor farmer to benefit, they they can perhaps give a higher limit of exemption but not total exemption.
Indian Seafarers working on foreign flagged ship should still be able to enjoy the earlier benefits as per section 4-2-b of the DTC since seafarers generally fly out of the country to join ships. Section 4-2-a is specifically mentioned to give the same benefits to Indian Seafarers working on Indian flagged ships.
Regards
As per the Indian seafarers are concerned there is no change.. its status quo
Hi,
Just wanted to check the following:-
I get car allowance of Rs 350,000/- per annum. Can Rs 9600/- from this component be exempted from income tax as it is a form of transport?
Thanks and regards
Manish
@Manish
If you own a car the you can claim 1800 Rs per month as non-taxable (2400 in case its a big car)
@pankaj
Thanks pankaj, But i believe that the above mentioned amounts (1800 and 2400) is the perq tax applicable to employees. Not the rebate amount.
Just confused, need a bit clarity….
@Manish
Yes, these are perquisite amounts applicable to employees.
If your employer does not allow that, you can get consider 800 per month non-taxable as transport allowance.
I dont think you have put the NRI taxation issue clearly. I think one needs to read the lines carefully. Please examine the clauses carefully and explain. The ‘and’, ‘or’ have to be read carefully in the clauses to understand them. I dont think Indian government wants to block NRIs from sending their remittances to India and decide to settle in other countries and thereby lose what has been the permanent remittances of foreign exchange, in comparison with the hot money brought in by FIIs that can flee at short notice as it happened in 2008, putting the country into a bigger forex reserve problem.
If I am going with company leased car, my EMI is currently taken from my gross salary and I save on the tax on the EMI, which otherwise would be taxed at 30%. So in the current policy, payment towards such EMI enjoys a 30% tax exemption.
Can you please confirm what this would be in the new regime with DTC ?
Thanks
@Ashutosh A
I am not sure how this is being done currently in your organisation.
Does company own the car or you own it?
Are you working as a employee on salary or as a consultant (show income from business or profession)?
I am a salaried full time employee in an IT MNC. The car is owned by the company but I am assigned as the “registered user”. All expenses for the new car are financed by a bank appointed by the employer. Employees can choose between 24/36/48 month lease, based on which an EMI is deducted from the gross income (pre-tax). So the EMI gets covered from my pre-tax income and I save on the tax which I would have to pay if I got the car leased externally paying my EMI from my post-tax income. So, if the EMI paid from my gross salary is Rs. 100, I save Rs.30 which would else be paid as tax. At the end of the tenure, the employee has the option to buy the vehicle in his/her name paying a residual value.
Now, in the new world with the DTC coming in from April 2012, I am told that the advantage of Rs. 30 from the above example would only be Rs.20. Is this correct?
Finally, I have an option right now to choose the tenure (24/36/48months). If I am able to afford the payout, under which option would I save tax the most, assuming any money in hand can appreciate at 12% annually.
Thanks for your response and taking time to share your knowledge with us.
@Ashutosh
Direct tax code has proposed to do away with exemptions like LTA, car lease and ESOPs. Moreover, all types of perquisites are proposed to be included in salary income.
So they will be taxed on same rate as salary.
I HAVE A SINGLE PREMIUM INSURANCE POLICY PURCHASED IN 2001-02 HAVING SUM ASSURED NIL .THIS POLICY IS MATURING IN F.Y.2011-12. IS THERE WILL BE ANY TAX LIABILITY ?
@Sushil Batra
There will not be any income tax on this policy.
Under the provisions of section 10(10D) of the Income-tax Act, 1961, Maturity/Death claims proceeds of life insurance policy, including the sum allocated by way of bonus on such policy is exempted from income-tax. However any sum (not including the premium paid by the assessee) 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 20% of the actual capital sum assured will no longer be exempted under this section.
Hi Pankaj,
Thank you for your effort to make taxpayers aware of the new rules. I am an NRI living in the US and have an apartment in Kolkata (paid in instal ments starting from 2003, taken possession in Nov 2005) which I plan to sell soon. I funded the purchase entirely with USD remitted via a bank here.
First, are the rules now final?
From when are they going to be effective? April 2012?
In my case, can I still work out the capital gain by using indexation from 2003, as now?
Will the CGT be 20%, or increased to 30% under the new rules?
Can I still invest the gain in approved bonds in India for 2(or 3) yrs and then repatatriate the gain, to avoid the CGT?
I would appreciate your help.
Amiya Basu
@Amiya
As of now, these Direct tax code rules are final and will be effective from 1st April, 2012.
If you sell before April 2012, you will be able to get benefit of current rules of 20% income tax on capital gains after indexation.
After April, 2012, this whole capital gain will be added to income and will be taxed at normal tax slabs (max 30%)
To save income tax on this long term gain, you can invest the amount again in buying another house (within a year of before selling or within 2 years of transfer) or construct another house within 3 years of sale or Invest in capital gains bonds within 6 months of sale (Section 54 EC of the Income Tax Act) issued by Rural Electrification Corporation, National Highways Authority of India and National Bank of Agricultural and Rural Development. These bonds have minimum 3 years lock-in and 5-8 years maturity.
In case you are not decided about buying new property but intend to buy one later and still want a deduction on the tax on your capital gain, you must invest whole amount in Capital Gains Scheme of Deposit Account, which can be opened in any public sector bank branch. But if this amount is not used for buying new house within three years, tax on long term capital gain have to be paid.
Pankaj
Kudos for sharing your knowledge. Such information is really helpful. Not sure if you are aware but your blog is the first link if you google for Direct Tax Code. Thanks again.
Hi,
What would happen to ELSS plans post DTC implementation?
@Rajneesh
Investment in ELSS won’t be considered for tax exemption after DTC implementation (from 1st Apr, 2012)
@Rajneesh
Units will still be locked for 3 years from date of purchase and most probably, tax saving funds will be converted to open ended equity schemes after Apr, 2012. But there is no news from fund houses as of now on this.
DTC effect on Home Loan is not clear. It will be helpful if u clarify.
@Kaushik
1. Currently available Home loan principal repayment exemption under section 80-C (max limit 1 lac) won’t be available under DTC.
2. Home loan interest payment will be exempted from income tax upto 1.5 lacs, in case of self-occupied property.
3. In case of rented property, Home loan interest payment amount would be deducted from rent income, before computing income from house property.
Will the LIC policies / insurance will come under Tax exemptions.
@Saji
A policy will not be eligible for tax deduction if it offers a life cover of less than 20 times the annual premium.
If premium paid in any of the premium paying year is more than 5% of sum insured, tax benefit won’t be there both at the time of investment and maturity.
Hi Pankaj,
Is it applicable for the new policies issued after DTC implemented, or for old policies as well. I want to check the situation for money back policy taken for 20 yrs. In this case the annual premium paid will be more than the SUM assured.
@Lalit
Its applicable to old policies as well, for which you will be paying premium in financial year after DTC implementation.
For tax exemption, Sum assured should be 20 times or more than the annual premium paid.
Pankaj,
I have insurance premuim of 55K on a Sum assured of 10 lakh. Would it be admissible for the tax consideration?
Thanks,
MJ
@Maja
As your sum assured is less than 20 times your annual premium. This policy won’t be available for tax exemption under Direct Tax code (DTC).
Dear Pankaj,
Thanks for the article. Is this policy affective from April 2011 to March 2012 or it is 2012/2013?
@Vinod
Its applicable from 1st April, 2012.
Dear Mr.Batra I just wanted to know that I am working with Pvt Company and can I invest right now(jan’11) in NPS or it is only for govt. employees, if yes than whom to contact and how to invest.
@Giriraj
Yes, you can also invest in NPS. It was opened to all Indians on 1st May, 2009.
Regarding how and where to apply, Read here: http://www.pankajbatra.com/india/new-pension-scheme-nps-india/
Does this mean Taxes (TDS) deducted in FY 2011-2012 will be based on new Tax Code (DTC)
@Govind
TDS deduction starting from 1st April, 2012 (FY 2012-13) will be based on direct tax code.
For house rent income reducing deductions to 30% is bad. Removing notional rent concept is good. However, if you have an additional house that is not rented out for some minimum number of days in the year, it can attract wealth tax. So, the notional rent concept seems to still exist in some other form.
You work is nice.
What if a sailor is working in non indian flagged company will he get a NRI status if he out only 182 days or he alse has to be out for more than 60 days to get NRI Status.
@Sanju
In case a sailor is in India for even 60 days, he will not be considered NRI and whole of his income will be taxable in India.
But Shipping industry wants review of tax on seafarers in new DTC and lets hope some relief some soon for same.
i dont think it is passed in parliament at first instance..this i hope is only in draft so far.
Dear Sir
Could you tell me 5 ways of saving tax after DTC has been applied.
@Sandeep
After DTC is applicable, you may choose to invest in following components.
1. New pension scheme
2. Term insurance
3. Medical insurance
4. Home loan
5. PPF.
Does PPF investment be still exempted from tax once DTC comes into picture??????? whether it comes in that 1 lac slab ?????
@Sachin
As of now, provident funds are included in tax saving provisions after DTC comes into play. It will come under same 1 lac tax savings slab.
Hi Pankaj,
Can you please elborate on EPF withrawal, what will be the case if I withdraw whole amount in fy 2012 (if the same is not 5 years old still)
@Sumit
In case you have not maintained EPF account for 5 years, withdrawal will be taxed.
The amount that will be added to your taxable income will be sum of Interest on your’s and employer’s contribution, whole of employer’s contribution.