Starting with Financial Year 2011-2012, Indian Government is planning to abolish the existing Income-Tax Act 1961 and replace it with DTC (Direct Tax Code) . There are going to be wholesale changes in the way, taxes are being calculated and paid by organizations and individuals, including the existing Income Tax Slabs. In an Earlier Blog Post, we have already discussed these proposals for New Income-Tax-Slabs being introduced by DTC (DTC Tax Code). Let us turn to some of other highlights, especially the good things, bad things and ugly things and Pros and Cons of DTC (Direct Tax Code)
Good Things (Pros)
- Earlier, as per Income Tax Act 1961, most of the investments came under EEE(Exempt-Exempt-Exempt) Category. What that meant was the tax exemption is enjoyed at all the Three Stages – Investment, Accumulation and Withdrawal. All this is going to change, once DTC regime comes in place. As per DTC proposals, most of these investments (except few mentioned in the second paragraph) will now be considered under EET(Exempt-Exempt-Tax) Category. What is means is you will have to pay taxes on any money being withdrawn from these funds.
Earlier it was supposed to cover most of the investment avenues like Life Insurance, Mutual Funds, Equity Linked Saving Schemes etc. But Thank God, our parliament members showed some sympathy and revised the rules on 15th June, 2010 to exclude some investments from EET category. Now 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 will all continue to follow the EEE Regime.
- On top of existing Rs 1 lakh tax benefit, an extra Rs 50,000 has been added for “Pure Life Insurance“ (Sum insured is atleast 20 times the premium paid), health insurance, mediclaims policies and tuition fees of children.
- Maximum limit for medical reimbursements has been increased to Rs 50,000 per year from current Rs 15,000 limit.
- Tax Exemption for interest-payment on housing loan for self-occupied property will remain the same i.e, Rs 1.5 lakhs per year.
- For income/losses from housing property, deductions for Maintenance and Property Tax 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 tax.
- Tax exemption on Education Loan Payments to continue.
- Surcharge and Education cess are abolished.
- Corporate tax to be reduced from present 34% to 30 % including education cess and surcharge
Bad Things (Cons)
- No tax benefit on Principal Repayment on House Loan and Stamp Duty and Registration Charges on purchase of house property either.
- No tax benefit for LTA (Leave Travel Allowance)
- No tax benefits for investments made as part of Unit Linked Insurance Plans (ULIPs), Equity Mutual Funds (ELSS), Term Deposits, NSC (National Savings Certificates), Long Term Infrastructures Bonds.
- All dividends will attract 5% tax.
- As per the existing laws, an NRI(Non Resident Indians) is liable to pay taxes on his or her global income, if he or she stays in India for a period more than 182 days in a financial year. But DTC is going to shorten this duration to just 60 days.
We can only hope that all the good things are implemented as part of DTC and bad ones, if not dropped altogether, will at least be made reasonable. So let’s keep our fingers crossed and wait for its final implementation 🙂