DTC -Indian Government Approved Direct Tax code

1. This will be operative from 1.4.2012 only instead of 1.4.2011.


2. The basic exemption limit for individual income tax is up from Rs 1.6 lakh to Rs 2 lakh for individuals, including both male and females. Thus single tax slab is suggested for male and female thus removing favorable female bias. The male will gain tax advantage of Rs.4000.(from 1.6 lakhs to 2 lakhs thus on Rs.40000/-, tax gain of 10%). For female, tax limit is raised to 2 lakhs from 1.90 lakhs thus tax gain of Rs.1000/- taking 10% tax saving). Also, for senior citizens above the age of 65, the basic exemption limit has been raised to Rs 2.5 lakh. For them also, the limit is raised from 2.4 lakhs to 2.5 lakhs thus tax gain of Rs.1000 on the enhanced additional exemption of Rs.10000/-.


3. The limit under section 80C will remain as Rs.100000/- and additional limit of Rs.50000 is recommended for children’s tuition fees, medical and life insurance premiums.


4. The instruments under sect 80c qualifications are very limited in the new DTC. NSC,ELSS, ULIP, any ULIP linked insurance scheme and principal repayment for housing loans are removed from exemption form Sec.80 C.


5. The retirement instruments like EPF, PPF to get tax benefits and Exempt, Exempt and Exempt (EEE) will apply instead of earlier proposal of EET. EET(Exempt, Exempt and tax ) suggested for taxing at the time of receipt on retirement. So this is a boon for retiring individuals especially when there is no social security prevailing in india for elders.


6. Limit of exemption upto Rs.150000 for interest on housing loan stays under sec.24.


7. There is no long term capital tax on shares held more than one year.


8. For short term capital gains in shares, the taxes are reduced . Gains will be taxed at 50% of applicable taxes for individuals, HUF etc. For corporate, it will not apply and they have to pay at maximum rate of 30%. So for individuals, the tax rate may be 5% for the persons in the tax slab of 10%, 10% for the persons in the tax slab of 20% etc. This is against existing uniform tax rate of 15% uniformly to all categories.


9. Securities Transaction Tax will continue on equity and other trading instruments.


10. The wealth tax rate, though retained at 1 per cent, is now applicable for assets above Rs 1 crore. Earlier, this rate was applicable on assets above Rs 30 lakh. This is revenue earning plan of finance minister. Earlier, any cash holding above Rs 50,000 was considered as part of wealth. DTC proposes to increase it to Rs 2 lakh. Deposits in banks abroad are also going to be a part of wealth . Also, watches, art and painting have been brought under wealth tax net. This will be one of the major revenue earner for Indian exchequer.


11. Corporate tax has been reduced to 30 per cent from the current 33.22 per cent, while MAT rates have been raised marginally from the current 19.93 per cent to 20 per cent on book profits. Corporate tax is reduced due to abolition of surcharge and education cess. All corporate taxpayers will now be liable to MAT, including those availing of the incentives linked to investments and profits.


12. Companies can carry forward MAT credit that is equivalent to the difference between the corporate tax and the actual MAT paid. The new tax Code increased the credit carry forward period to 15 years from the current 10, which is being seen as a positive move in industry circles.


13. DTC Bill proposes to impose a five per cent dividend distribution tax (DDT) on mutual fund houses and life insurers on income distributed by them. This will reduce income to investors in mutual funds and ULIP holders slightly less amount as 5% will be deducted in advance by mutual funds and insurers on investors’ behalf. This is applicable for funds investing 65% in equity or more. For rest of the schemes like debt oriented etc or less than 65%, the tax will be applicable rates rather than 5% and it will be heavy. In these cases, TDS will be 10% and investors have to adjust the balance payable rates in their income tax calculations at the payable rates.


14. Foreign companies to pay tax at the same rate as local companies.


15. For deductions under rented house, only 20% of annual value will be given as rebate for repairs instead of 30%.


16. Annual value will be actual rent received and not notional rental value.