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)
Hey,
Nice Article.. could you please help me with the following queries:
1. If I invest in Mutual Fund: Equity Growth funds… Will the cap gain or the amount invested be taxable, if yes what is the tax liability ??
2. If I have taken up Education Loan for higher studies and I have to start paying installments, what is the kind of exemption that I would get?
3. Also, Could you also upload Income tax calculator for coming years as in IT due on Mar 2012 as you have done for 2010-2011
Thank you so much
Regards
Navleen
@Navleen
1. If equity mutual funds have been kept for more than a year, there won’t be any income tax. If not, then 50% of the gain will be added to your taxable income.
2. For education loan, whole interest payment is exempted from income tax.
3. Income tax calculator for 2011-12 is already available at http://www.pankajbatra.com/finance/income-tax-calculator-for-2011-2012/
Dear Navin,
If someone does investment in shares by taking loan from Bank , the gain will be a capital gain or business income?
Grateful if you clarify the difference mentioning any cut off limits for such transactions during a financial year.
@Ashok
If one trades heavily into market with intra-day trading and futures, then he might be tagged as trader by income tax assessing officers. In that case his income will be treated as income from business.
Otherwise gain will be considered as capital gains.
Hi Pankaj,
Thanks for the detailed analysis. I have a question on “hybrid” category of Mutual Funds and also those that fall under the “debt” category. How will the long term capital gains be taxed in these cases? As dividend income @ 5%, as ordinary income – 10 to 30% depending on my tax bracket, or are they completely tax exempt? Can you please clarify? Thanks so much.
@Moushumi
For all non-equity investments (on which STT is not paid), tax-ability will remain same which is there as of now.
All redemption before one year will be considered as short term capital gains and will be added to taxable income.
All redemptions after a year will be long term gains and income tax will be 10% without indexation benefit or 20% with indexation benefit.
Hi Pankaj,
In the name of simplification , DTC is still quite ambiguous.No doubt, they are making the implementation in a phased manner, but it is becoming very tricky while taking some decisions.Instead of answering queries in bits and pieces, can you give a comprehensive article on the state of affairs:like
1. What an individual need to plan as far as tax from salary point of view:
2. How the investment in home loan will effect during the next 5 years
3. Alternative measures to utilize the limits of the DTC from 2011-12 onwards
4. A comprehensive 5 year/10 year investment policy to be taken for salaried individuals,…..
Hope I am not demanding much.
@BhanuMurty
Thanks for you input.
I would definitely try to write a post covering all these aspects.
IN THE YEAR 2010 TO 2011 IF I EARNED SHORM TERM CAPITAL GAIN THRU SHRES TRADING 50000 RS AND BOOKED LOSS OF 20000 HOW MUCH TAX WILL BE APPLICABLE
@Sahaj
If your total income including short term gain (Short term gain-Short term loss) is less than 1.6 lakhs, there will be no tax on short term gain. But if total amount is more than 1.6 Lacs, then you will have to pay tax on excess amount (total taxable income – 1.6 lacs).
Income tax on short term gains from share trading or equity mutual funds is 15% of short term capital gains.
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
@Suresh
If you are getting exemption for conveyance allowance then you cannot get exemption for perquisite.
If you driver your own car to office then maximum exemption available for perquisite will be 1800 per month (2400/month in case car’s cubic capacity > 1.6)
If i traded through out year 2010 to 2011 with 05 crore turnover (share trading )and earned around Rs. 3 lacs short term capital gain and booked loss of 30000 Rs how much tax would be ,and i do not have any other sorce of income.
what is tax audit because of heavy turnover should i worry about it
@Nam
As turnover is huge, you will fall into trader category and income from business/profession will apply.
Please consult a CA or tax professional in your case.
Hi Pankaj,
My question is regarding Capital Gains.
STT is applied to my each and every transaction by Bank (HDFC being the Broker) itself regardless of it being Short Term or Long Term.
Do I still have to pay for my earnings from Short Term Capital Gains ? (Say if its more than 1,60,000).
I don’t have any sources of Income.
Regards,
@Dipen
STT is applied on all equity based transactions. Even after STT is paid, income tax is payable for Short term gains.
But if total income is less than taxable range (1.6 L), then there won’t be any income tax payable. If its more than this limit, tax is payable on amount exceeding the taxable limit.
Can you please tell me from when this DTC is applicable ie. from which year ???
@Prashant
DTC (Direct tax code) is applicable from 1st April, 2012.
Hi Pankaj,
Yours is a great site, and I have been a regular for over seven months now. Good going. The new DTC, does it intend to change any provisions regarding existing tax benefits on leased cars? Much of the corporate would love clarity on this issue. Surely you can provide details. Thanks. Wg Cdr (Retd) Rajiv Anand
@Rajiv Anand
As of now there is no clarity on perquisites components. We assume that it will be carried forward as it is after DTC as well.
IN TEAR 2010- 2011 WITH SHARE TRADING AND INTRADAY SHORT TERM GAIN WAS 1 LAC 50 THOUSAND AND TOTAL TURN OVER WAS 4 CRORE .WHAT SOULD I DO IN THIS CASE? I HAVE NO OTHER SOURCE OF INCOME
@Dolly
You will be most probably marked as trader and not a investor.
So you will have to file income tax return form 4 (ITR-4) as you have income from business/profession.
Sir,
You truly have a wonderful site, a real treasure trove on important matters. I have a question regarding capital gains.
I have bought a house in 2003, kept on paying housing loans till it has got completed just now and registration and hand-over happened this month. I plan to sell it and buy another house. How will current tax act vis a vis DTC affect me?
@Bappaditya
As of now, the long term capital gain (after indexation) is taxed at 20%. After direct tax code, this gain will be added to your taxable income and will be taxed accordingly as per your slab rates (mostly it will be 30% as gain will hit the upper slab rate).
But if you buy another residential property with the capital gain amount, then there won’t be any income tax.
Hi, Looks like seafarers will have no option but to transfer there money else where instead of bringing it to India. These bunch of idiots will loose a lot of Foreign currency once they start this new Direct tax.
There are plenty of tax heavens else where and are easily reachable for seafarers so will find there way out, buy properties out of India.
These politicians will make billions and want to kill the golden Grouse cheers for them
Dear Pankaj
My questions are as follows;
What will be the tax treatment for long term ( over 1 year) FMP’s ( close ended Debt Mutual Funds) purchased prior to April 1st, 2012 say 16.4.2011 but maturing post April 2011 (say 20.4.2012) where investors have opted for Growth Option.
Will the holding period be calculated from date of purchase viz 16.4.2011 to 20.4.2012 qualifying it as Long Term asset or from end of financial year i.e from 31.3.12 to 20.4.2012 qualifying it as a short term capital asset.
For determining indexation I think it is clear that the calculation will start from end of financial year. However in case the second interpretation is true than indexation will not be available as it is a short term gain.
Is there a possibility for grandfathering here viz. to tax gains between 16.4.11 to 31.3.12 on one basis and between 1.4.12 to 20.4.12 on another basis.
Thanks in advance
sanjay sondhi
@Sanjay
Any FMP sold after direct tax code introduction, will have DTC rules applied. If the investment has been held for more than a year, the capital gain after indexation will be added to taxable salary and will be taxed as per slab rates.
Holding period is calculated from actual date of buying and selling (does not depend on financial year). If investment is held for more than a year, it will be long term and indexation rule will apply. Cost inflation index(CII) of financial year in which funds are bought and CII of selling year will be used.
Gains cannot be split in two duration. It will only depend on buying and selling dates.
Hi Pankaj
I am an IFA dealing in MF’s IPO’s and FD’s and RBI Bonds. I am also registered as a sub broker for secondary equity under a main broker. I am also registerd in the category of Management Consultant under srevice tax. Please clarify if the following services are taxable or exempt from grossing up requirements under service tax.
Brokerage received from RBI for RBI Bonds distributed. RBI says it is not liable for service tax and hence I am unable to bill them for service tax. They do not deduct any TDS saying primary market payments are exempt from TDS.
Brokerage on IPO’s . Merchant bankers pay me this income. They do not deduct any TDS.
Brokerage on Company Fixed Deposits – The deduct TDS. They do not reimburse any service tax.
Sub-Brokerage on Capital Gains Exemption Bonds (REC/NHAI) where I act as a sub broker of another broker.
Sub-brokerage on Secondary Equity deals.
Would be grateful to get your response.
regs
@Sanjay
Please consult a CA or tax professional in your case, as your query is outside my domain.
Great article. would visit regularly in future.
Dipak
Hi pankan, I am about to take child insurance plan for my newborn baby, I am 31 year old and calculations for 21 year plan of Jeevan Chhaya coming out are as follows – 20700 per year premium for 4 L SA – Will I be able to get tax exemptions in DTC regime since SA is not 20 times of yearly premium. So in this case what shall I do ? Inrease no of years to 22 in order to reduce annaul premium ? Do this case in ineligible to fetch tax exemptions in DTC ? Pl advise.
@Avinash
First of all, congrats for your newborn baby.
As far I understand you need an investment plan and not an insurance. Please don’t mix two altogether different aspects and please don’t buy child insurance plans for child’s future needs.
Better way is to keep investment and insurance separate.
First, get a term insurance for yourself with sum assured at-least 20 times your annual income plus any outstanding loan amount, if any. You may choose between ICICI iProtect term plan and LIC Amulya Jeevan. It won’t cost you much for a 30 years policy. You will get tax exemption for this after DTC too.
Whatever is remaining amount (20700-term insurance premium) invest into a mix of Large cap mutual funds and debt based mutual fund through monthly SIP. Some amount can be invested in NPS or PPF for tax saving purpose.
Dear Pankaj,
There have been conflicting views on investment products which have tax exemption. eg economic times says ulips and elss still exist as tax saving products. “http://economictimes.indiatimes.com/quickiearticleshow/6057102.cms.” The pdf of the DTC did not clearly mention this. Can you please clarify regarding this issue.
@Aneswa
After DTC, ELSS won’t be available for tax exemption. Insurance premium (including ULIPs) will only be exempted if annual premium is less than 1/20 times sum assured.
I own my father’s house which was a earlier a tenanted property and now become
a ownership premises, which is registered and stamp duty paid. I want to sell this premises within 1 year after taking possession of this house. Please suggest
what will be the tax implication on this. If it is short term, what percentage of tax
is to be deducted and also can I invest in some Govt. Bonds/property to avoid
paying the tax.
@Mavis
if you sell before three years, short term gain will be apply and there is no tax exemption available on the same. Whole of gain will be added to taxable income and taxed as per slab rates.
If your father owned it for more than three years and it has been now transferred to you, then you may consider initial purchase date (when your father got it) for capital gain computation. In that case it can become a long term gain and you can save income tax by investing in capital gain bonds or a new property.
Please clarifty under which head profit /Loss from Futture/option of equity trading should come and which form ITR form should be filled for showing profit/loss from F&O.
@P.Mukherjee
If your volume of transaction is high, then this income will be considered as income from business. In this case you will have to file ITR 4.
Else if you area salaried and only trading in future/option sometimes then it will be treated as capital gain. In this case you will have to file ITR 2.
Dear sir
I am 54 year old. Please inform me which is best medical insurance to take ( for expenses for operations etc)
@Milind
Insurance policies has to be bought considering various points like max renewal age, co-payment, coverage of day-care procedure, maximum hospital bed charges etc.
You can buy Apollo Munich, Max Bupa or Star health. But please do your homework before buying a policy.