Direct Tax Code : Highlights

by khalid on 13/09/2010 · 2 comments

Finally the New Direct Tax Code (DTC) Bill has been tabled in Parliament to replace the existing Income Tax Act of 1961 in India. After approving from both the houses it will be implemented from 1st April 2012. Earlier in Budget 2010, DTC was proposed to implementrd from 1st April 2011 but not now it has been shifted to 1 year later. Finance minister Mr. Pranab Mukherjee has changed some points and now there are less benefits as compared to the original draft.

The big change is that the same tax slabs will apply to men and women. Now both are eligible for Rs 2 lakhs tax free exemption, whereas previously it used to be up to Rs 1.6 lakhs for men and Rs 1.9 lakhs for women.

The new features and highlights of the DTC are as follows :-

1. 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 fund.

2. The new provisions under the Direct Tax Code are as follows:

Tax for income op to Rs. 2 lakh – Nil

Tax for income between Rs. 2 lakh – Rs. 5 lakh: 10%

Tax for income between Rs. 5 lakh – Rs. 10 lakh: 20%

Tax for income over Rs. 10 lakh: 30%

The limit for exemptions for salaried people is Rs. 2 lakh, while that for senior citizens is Rs. 2.5 lakh.

Earlier it was proposed like follows :-

Tax for income op to Rs. 1,60,000 – Nil

Tax for income between Rs 1,60,001 to Rs 10,00,000 : 10%

Tax for income between Rs 10,00,001 to Rs 25,00,000 : 20%

Tax for income above Rs 25,00,000 : 30%

3. New DTC removes most of the categories of exempted income. ULIPs, ELSS, Term deposits, NSC , Long term infrastructures bonds, house loan principal repayment, stamp duty and registration fees on purchase of house property will loose tax benefits.

4. The earlier draft was silent on housing loans.  The revised proposal has made it clear that tax incentives on housing loans will continue. Payment on interest on housing loans up to Rs. 1.5 lakh will continue.

5. Short-term capital gains will be taxed only 50% that is if you gains 1 lakh , add 50,000 to your taxable income. Long term capital gains are still exempted from income tax.

6. As of now, it is proposed to provide the EEE (Exempt-Exempt-Exempt) method of taxation for Government Provident Fund (GPF), Public Provident Fund (PPF) and Recognised Provident Funds (RPF). 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. Surcharge and education cess are abolished  and  Tax exemption on LTA (leave travel allowance) is abolished.

8. For incomes arising of 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.

9. Tax exemption on Education loan to continue.

10. Corporate tax reduced from 34% to 30% .

11. Medical reimbursement : Max limit has been increased to 50,000 per year from current 15,000 limit.

There will be a windfall for taxpayers, once the DTC is applicable. You will in fact have to pay less Direct taxes in every slab of income.

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{ 2 comments… read them below or add one }

J Bhagat November 28, 2010

Following queries I have–
1.For how many years this code is for so that every year people need not to plan.
2.Who is Sr Citizen 60/65yrs. For Tax benefit why 65.Why not people retiring at 60 are Sr Citizen for FM.Because they are not earning any money except Pension.Rather they are paying tax on Pension,Interest on FD (accumulated thro PF and others).
3.Why tax on pension, this cannot be taken into income after retirement.
4.There should be same retirement age. People retiring at 65 are earing 5years more than people retiring at 60.
5.One way woman has been kept in at par with man in taxing but other side Govt is to pass bill for 33% reservation in Parliament and jobs too. In my opinion they should be given tax benifit.
6.In view of market situation and increasing living expenses No tax upto 3 lakhs.
7.Due care to be given to Sr Citzn for Tax Benefit as they totaly depend upon Money Power. Also because of various expenses they need money to survive respectfully and not for begging by roadside. Thus they should be given extra benefit of 1Lakh ie: No Tax upto 4 lakhs.
8. Businessmen are paying marginal tax wrt service class as they are not being
identified properly and many more paying nothing.Why they flourishing in short time ,making many houses/flats .
9.In my view- No Tax upto 3lakhs. and for Sr Citzn- 4 Lakhs
10% Tax 3lakhs to 10 Lakhs
20% Tax 10 Lakhs to 20 Lakhs
30% Tax Above 20 Lakhs
People retiring at 60 must be considered Sr Citzn. and those Retiring at 65 should be given Tax Benefit of Sr Citzn.
No Tax on Pension of any kind.


khalid November 29, 2010

Hi Bhagat,

All of your queries are self-explanative and I am totally agreed with you that Sr, Citizen benefits should be available from the age of 60 years, ladies tax payers should get extra tax benefits, tax exemption limit should be increased to Rs 3 lakhs and there should be no tax on pension.
Thanks for sharing your opinion here.



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