The first draft of New Direct Tax Code, floated last year, drew flak after it proposed to tax various retirement / pension schemes at the time of withdrawal in the absence of any social security schemes like medical, old age benefit, death and disability benefit, unemployed person benefit as prevailing in developed countries practicing EET regime . Please refer my earlier post which provides detail description of Earlier Proposed Original New Direct tax code which was criticized specially for taxing retirement benefits. The revised draft, put for public discussion till June 30, retained the income tax exemption given to provident funds, pension funds at the time of withdrawal.
Now no need to worry, as all the investment done during EEE regime will be out of purview of EET regime. Example: now maturity proceeds from your life insurance policy will not be taxed under new regime as proposed earlier. Every amendment will benefit individuals except equity investment, which didn't attracted any tax earlier if investment duration was more than 1 year, which will now be taxed as per capital gain tax slab.
Now no need to worry, as all the investment done during EEE regime will be out of purview of EET regime. Example: now maturity proceeds from your life insurance policy will not be taxed under new regime as proposed earlier. Every amendment will benefit individuals except equity investment, which didn't attracted any tax earlier if investment duration was more than 1 year, which will now be taxed as per capital gain tax slab.
Please find the Summary of New Draft relating to Individuals
- The new draft proposes “Exempt-Exempt-Taxation” (EET) method of taxation for savings.
- The Code provides for deduction in respect of aggregate contributions upto a limit of Rs. 3 lac in 1 financial year.
- It is proposed to provide the EEE method of taxation for Government Provident Fund (GPF), Public Provident Fund (PPF) and Recognised Provident Funds (RPFs) and the pension scheme administered by Pension Fund Regulatory and Development Authority. Approved pure life insurance products and annuity schemes will also be subject to EEE method of tax treatment. In order to achieve the objective of long term savings, the rules for contribution as well as withdrawal will be harmonised and made uniform so that such savings are actually made and utilised by the taxpayer for the long term.
- Value of rent-free accommodation will be determined for all employees including Government employees in the same manner as is presently determined in the case of employees in the private sector.
- The amount of gratuity received, the amount received under a voluntary retirement scheme, the amount received on commutation of pension linked to gratuity received and the amount received on account of encashment of leave at the time of superannuation are proposed to be exempt, subject to specified limits, for all employees.
- Investments made, before the date of commencement of the DTC, in instruments which enjoy EEE method of taxation under the current law, would continue to be eligible for EEE method of tax treatment for the full duration of the financial instrument.
- An employer's contribution to an approved provident fund, superannuation fund and New Pension Scheme within the limits prescribed shall not be considered as salary in the hands of the employee. Also, retirement benefits received by an employee will be exempt subject to specified monetary limits.
- Earlier version of the draft removed the Tax exemption on housing loan but the revised draft proposes that tax exemption on Housing loans for Principal as well as Interest component are going to stay. Now, rent received/receivable in a year will be gross rent. No presumptive basis to be used for calculation.
- No distinction of short-term investment asset and long-term investment asset.(No Change). The capital gains from all investment assets will be aggregated to arrive at the total amount of current income from capital gains. The gains were to be included in the total income of the financial year in which the investment was transferred, and subject to tax at applicable marginal rate for residents and at 30% for non-residents.
- DTC had also proposed abolishing Securities Transactions Tax.
- The net wealth of an individual or HUF in excess of Rupees fifty crore will be liable to pay wealth-tax at the rate of 0.25 per cent.
Please click the link below (Income Tax Department website) to read or download the Complete Revised Draft http://incometaxindia.gov.in/archive/BreakingNews_RevisedDiscussionPaper_06152010.pdf
