Direct Tax Code DTC Summary _ Highlights _ Income Tax

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04-Jan-11 Direct Tax Code DTC Summary | High…

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Direct Tax Code – DTC – Highlights

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Posted in Finance, Government, Income Tax, India, Investment.

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The New Direct Tax Code (DTC) is said to replace the existing Income Tax Act of 1961 in India. It is

expected to be passed in the monsoon session of 2010 and is expected to be enforced from 2011 2012. 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 and now it will be

applicable from 1st April, 2012.

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. You can download the bill tabled in

parliament from below link:

Direct Tax code bill (1.1 MiB, 621 hits)

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Here are some of the salient features and highlights of the DTC:

1. 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. 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.

3. The 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. Exemption will remain same as 1.5 lakhs per year for interest on housing loan for self-occupied property.

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5. 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. 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. Surcharge and education cess are 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.

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. Tax exemption on LTA (leave travel allowance) is abolished.

10. Tax exemption on Education loan to continue.

11. 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: Dividends will attract 5% tax.

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.

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Related posts:

1. How to Save Capital Gains Tax (LTCG) when Selling Land / Plot

2. Income Tax Calculator for 2010-11

3. Income tax calculator for India

4. 2010 Budget update

5. File Income Tax Return Form Online

By Shantanu Rastogi – September 1, 2010

98 Responses

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1. kanak says

DTC is going to be implemented from 1april 2012 . according to revenue secretary , government is going to lose

how much in 2012-13?

October 30, 2010, 11:20 am Reply

2. ROLAND FIDELB D'COSTA says

DOES THE DIRECT TAX CODE CHANGE THE FORMS 15G, 15H? IF SO IN WHAT WAY /

November 10, 2010, 10:47 am Reply

Pankaj Batra says

@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.

November 10, 2010, 4:08 pm Reply

3. shivkumar p Yerawar says

agricultural income to be taxed..


Pankaj Batra says

@Shivkumar

Exemption of Agricultural Income under the New Code will be continued.


Gaurav says



.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.

December 13, 2010, 11:44 am Reply

4. Philips says

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

November 19, 2010, 8:55 am Reply

Estoria says

As per the Indian seafarers are concerned there is no change.. its status quo

December 8, 2010, 1:40 pm Reply

5. manishkaria says

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


Pankaj Batra says

@Manish

If you own a car the you can claim 1800 Rs per month as non-taxable (2400 in case its a big car)


manishkaria says

@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….




Pankaj Batra says

@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.


6. AP says

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.

December 21, 2010, 1:25 am Reply

7. AA says

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


Pankaj Batra says

@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)?


AA says

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.


Pankaj Batra says

@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.


8. S.BATRA says

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 ?


Pankaj Batra says

@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.


9. Amiya K Basu says

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



January 1, 2011, 12:18 pm Reply

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