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)
My father retired in March 2007 after 33 years of Punjab Govt. service. After revision of pay scales he received additional amount of Rs.6,50,000/- as death-cum-gratuity in Dec.2010. Is this amount of gratuity taxable? If yes, What is tax liability on this amount?
@Manoj
Any death-cum-retirement gratuity received by central and state govt. employees, defence employees and employees in local authority shall be exempt.
Dear Manoj,
as per my opinion additional amount of Rs. 650000/- is not taxable. This is because as per income tax act 1961, any amount received by Govt. employee is not taxable. You can refer sec 10 of the income tax act 1961.
Hope you will be satisfied.
Dear Manoj,
How can your father receive death-cum-retirement gratuity ???..It will be only be retirement gratuity. Since ur father retired in 2007 amount received over and above Rs 3,50,000/- is taxable. Full Tax exemption in gratuity is only applicable to those employee who have retired after 24 May 2010( The day on which cabinet took the decision to fully exempt the tax gratuity). Death gratuity is fully exempted.
if a girl turns 18 on 16th Feb 2010 how is tax treated for her period ending 31/311 ( Income from 1/4/10 to 31/3/11) .She is a non-resident and PIO .
For the full year or proportionately from 16th Feb 2011 till 31/3/11 for the following;
a) rental income.
b) interest income on rental deposit -current and previous years.
c) property tax paid and 30% expenses allowed on rental income.
d) Personal tax rebate of Rs190,000/160,000 ??
e) Sec 80C investments.
All above income till 31/3/10 was clubbed with mother’s income.
Also do we need to show proof of 30% expenses by way of receipts and invoices or its allowed irrespective.
Thanks
PS: if there is something which I dont know-pls bring to my attention.
@Mahesh
At the time the child becomes major, the income earned till the date the child turns 18, is to be clubbed with guardian.
Only In case of earning from business of minor, the profits for the year in which she turns 18 whould not be clubbed, since they would accrue the last day of the year.
Status as at the end of the Financial year is to be examined and if one is major then income to be assessed separetly.
Income earned by your child is to be clubbed with the income of the parent whose income is higher. If, in the first year in which the child earns an income, the income is clubbed with the income of the father, then it has to be continued to be clubbed to the income of the father, even if next year, his mother might have a higher income.
Hi Pankaj,
Pls share inputs on any changes brought in by DTC on current benefits availed using joint housing loan? Currently, even being a joint loan, it made sense for the spouse falling in the higher tax bracket to avail the hosing loan benefit.. i already see this option falling off because of the same tax slabs applying for both men and women. Pls share your key inputs in this line. Thanks!!
@Ramya
I don’t see much impact of men vs women income tax slab rates.
Earlier as well, there was only a difference of 30,000, which comes out as only 3000 extra income tax in a year.
Exemption for Principal amount paid towards home loan, will be discontinued after direct tax code implementation.
But the exemption on interest payment will continue to fetch 1.5 lakhs on a self-occupied house.
For a rented property, all interest paid on house loan for a rented house will be deductible from only the rent earned.
Hi Pankaj,
Just wanted to know whether the premium paid for LIC is being tax exempted or not…
@Raj
Yes, but only in the case when the annual premium is less than 5% of sum assured.
Hi Pankaj..
What if the rental income is lower than the interest paid? will i get full benefit or the benefit would be capped by the rental income..
@Ashutosh
Interest benefit would be capped by rental income as in new rules, interest paid on house loan for a rented house is deductible only from rent in case of non occupied property.
Thanks for the DTC bill upload! 🙂
Can deduction u/s 24 (interest on self occupied house property) can be claimed in case of purchase of semi finished house? as of now & also after implementation of DTC ?
@Sushil Batra
Yes, you may claim income tax exemption towards interest payment for home loan if you buy any residential property. But you must get possession for the same before start getting exemption.
This will continue with Direct Tax code as well.
Resp Sir,
any insurance policy after 1st April, maturity will be taxable ?
pls guide me..
@Kanabar
Under Direct Tax code, amount received on maturity is exempted from Income tax, if the premium paid every year is less than 5% of sum assured & maturity amount is received on completion of original insurance period. Proceeds received on death are completely exempt.
nice article. thanks a lot for this info
will jeevan anand policies, icici tax plan etc & infrastructure bonds be counted under investments for tax rebates?
@Bhoomika
In case your sum assured in Jeevan Anand is more than 20 times of your annual premium paid, it will be counted for tax exemption under Direct Tax code too.
Mutual funds like ICICI Tax plan and Infrastructure bonds won’t be available for tax rebates.
Hi Pankaj
If the LIC premium is paid half yearly and the one installment doesnot exceeds the 5% of sum assured but combine exceeds the will the person able to get tax exempt under 80c after DTC comes to play
@Ritesh
Total yearly premium needs to be considered for direct tax code. So you won’t get tax benefit for your policy.
yes they come under 80c
thank u very much dear.
can you please tell me the DTC affect in Home Loan. They are already removed the principle amount from exemtion. Whether we can claim the house rent.
@Ramesh
Exemption will remain same as 1.5 lakhs per year for interest on housing loan for self-occupied 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.
@Ramesh
Also HRA exemption will still be applicable for the rent paid.
Hi Pankaj,
Read todays (02 Mar 2011) ET. In one of the columns regarding budget it is mentioned that from coming 01 April the contribution made by employer in the NPS account of the employee will not be considered in the gross salary and also it will be out of the Rs One lakh limit for saving under sec 80 C( only employers cont) hence more scope for saving for an individual in other products.
However I didnt find it any where in the budget. I guess it is applicable from 01 April 2012. Right????..Your comment please
@Amit
I am also not able to find this in Finance minister speech or any other document on Budget site.
But most of the news websites have this news.
I am getting conveyance allow. in my salary for which i am being given exemption u/s 10 by my employer.At the same time i am also getting reimbursement of fuel upto a limit of 125 lts.p.m as perquisite for car owned by me.If I furnish to employer Log book mentioning details of official journey as well as journey between my residence & office,How much i can get exemption? Pl. tell
@Sushil Batra
For a employee owned car which is used by employee for official and personal use, max 1800 per month is non-taxable (this becomes 2400 in case its a bigger car).
Some companies also pays for fuel reimbursements apart from salary on actuals basis, mostly for sales people. But it has to be used for traveling to clients etc. Journey between residence and office cannot be provided in same.
Hi Pankaj,
I have some investment (SIP) on ELSS and ULIP. Due to DTC if investment on ELSS and ULIP removed form 80C then what will be the prospect of that what I invest in ELSS and ULIP fund.
@Subhajit
You can continue investing into ELSS until April 2012. Units purchased now will be locked-in for next three years as usual. But most probably these tax saver funds will be converted to normal equity funds after DTC comes into play.
After DTC implementation, all insurance policies with annual premium amount more than 5% of sum assured, will no longer be available for tax deduction. So in case you have such policy and completed three years on it, then you can surrender the policy now.
hello pankaj sir
i want to know about the disinvestment .
@Swati
Not able to understand your query.
My tax at source deducted by my employer in the financial year 2008-2009 and gave me form 16 , I have filed my return within due date , however I have received a letter from IT that the amount is due and pay the same within seven days of receiving this letter . Today I spoke to the concerned IT officer who in turn informed me that the amount has not been credited , so do i responsible for this lapses. What should I do.
@Madan
You should talk to your employer for non-submission of TDS.
In case they provided you Form-16 with mention of TDS amount deducted, they are legally bound to deposit the same with IT dept.
Current tax benefit on one year FMP is as follows.
Above 365 days and completion of one year applicable tax is – 10% long term capital gain or the indexation benefit (which ever is lower )
The new DTC is said to replace the existing income tax act. If it will be applicable from 1st April, 2012 in that condition whether we will get long term capital gain or not ?
I want your opinion on long term capital gains and indexation benefit both.
@Manoj
Under DTC too, same rule will be applicable of 10% income tax after 1 year and 20% with indexation benefit.
Sir,
I, a employee of BSNL, have taken retirement voluntarily on 1st April’2011.
My question to you that is there any tax liability will be applicable on the payment of the following :
i) Amount of GPF
ii) Amount of leave encashment
iii) Amount of gratuity
iv) Amount of pension contribution
@Ranjan
There is no tax liability on all these payments.
dear Pankaj
15. Bad 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.
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.
can you explain clearly more about this sir
wt do do regarding taxation & how to reduce IT.
really this is unfair to seafarers
dear Pankaj sir
can u please acquire more information regarding
taxation for indian sailors
some officials from DG shipping , areonautics is delegating with finance minister to alter that 182 days of staying in India is that so
@N.R.Ramkumar
(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.
There can be a conflict among 2-b and 2-b, as a. clearly specifies that exemption is only available for member of crew of an Indian ship. Whereas b. talk of employment outside India. Now point to see is whether working on a foreign ship comes under employment outside India or not.
Shipping industry leaders have been meeting govt official to get clarifications on new rules, as its very hard on seafarers working with foreign shipping companies. There is still more than a year for DTC to come into play. And we hope that there will be a clarity on this soon.
Hi Pankaj
My grandfather is very senior citizen. In teh new tax slab tehre is no income tax if you have earning upto 5 lakh. He has invested 7 Lakh in equity mutual funds to get periodic dividends. Once the DTC come to ply one has to pay 5% tax on dividend received. If after receiving/combining the dividend if his total income does not exceeds 5 Lakh limit then also he need to pay tax on dividend received or not. Should he convert that in growth option and then do systematic withdraw. What will be the best srategy ?
@Ritesh
Your grandfather can switch to growth plan and then get systematic withdrawal plan (SWP) activated. Long term gains from equity investment won’t be taxable, so rather than dividends he can redeem units whenever he needs money.