In the year 2009, Government had announced the New Direct Tax Code (DTC) from 01/04/2011. This announcement had created a big hype and also talked about simplifying our Tax structures. Initially it talked about replacing EEE(Exempt Exempt Exempt) regime i.e. Exempt at Contribution, Exempt at accumulation and Exempt at withdrawal with EET (Exempt Exempt Taxed) regime i.e. all savings and investments would be taxed at the time of withdrawal. Income tax Slabs were proposed to be significantly higher from present which would have resulted in much lesser tax outflow.
It was open for public discussion and there was a huge outcry on Retirement benefits which was proposed to be taxed in the absence of any social security system in place. In its Final draft, although EEE regime has been retained there has been many changes made which would effect the way we manage our investments. Against the original proposal of initial draft to lower tax slabs and give higher limit for investments for tax exemption, New direct tax code actually is reducing the investment avenues without actually raising the investment limits considerably. Indian public participated fairly and suggested many changes but broadly only one thing was heard and kept i.e. "Continuation of EEE regime and retirement benefits should not be taxed."
Finally Direct tax Code bill no. 110 of 2010) was tabled in parliament to replace the Income Tax Axt`1961.
Finally Direct tax Code bill no. 110 of 2010) was tabled in parliament to replace the Income Tax Axt`1961.
Please find the excerpts of New Direct tax code relating to an Individual
What it Says
Tax slabs
- Marginal Increase in Tax slabs against quantum increase as proposed earlier.
- Slabs would be the same for men and women against some relief provided to women taxpayer earlier
- Tax slab revision would no more be a part of the annual budget, and will not change every year.
- Some relaxation for only senior citizens has been proposed as available at present.
Income | Income Tax (IT) Rate |
Up to Rs 2,00,000 (Rs.250000 for senior citizens) | 0% |
Rs 2,00,001 to Rs. 5,00,000 (Rs. 250000 to Rs.500000 for senior citizens | 10% |
Rs. 5,00,001 to Rs. 10,00,000 | 20% |
Above Rs. 10,00,001 | 30% |
Section 69
Deduction for savings Upto Rs. 1 lac in EPF, PPF, Pension Fund or any other fund approved by the Board in accordance with scheme framed by the Central government.
Section 70
Deduction from life insurance Premium paid by an Individual on behalf of own, spouse, child provided annual premium is not more than 5% of Capital Sum assured.
Section 71
Deduction for health insurance Health Insurance premium paid by Individual on behalf of own, spouse, child and parents of such individual
Section 72
Deductions for education of children in respect of any sum paid during the financial year towards the tuition fee to any school, college, university or other educational institution situated within India for the purpose of full time education of any 2 children of such individual.
The aggregate amount of deductions under sections 70, 71 and 72 shall not exceed fifty thousand rupees. Meaning, you can claim deduction of Maximum upto Rs 50000/- on your Life Insurance premium, Health Insurance premium as well as tution fees for upto 2 children.
Section 74
Deduction of interest on loan taken for house or property Upto Rs. 150000/- on self occupied property in respect of any amount paid or payable by way of interest on loan taken for the purpose of acquisition, construction, repair or renovation of a house property in the financial, year in which such property is acquired or constructed or any subsequent financial year.
Section 75
Deduction of interest on loan taken for higher education in respect of any amount paid by an individual in the financial year by way of interest on loan taken by him from any financial institution for the purpose of higher education for self, spouse, children.
Section 76
Deduction for Medical treatment Upto Rs 40000/- and Rs 60000/- in case of Senior citizen. This is allowed for treatment in Govt specified hospitals for self, spouse, dependent children and dependent parents. If at all any amount has been reimbursed by any Insurance Company or Employer then same has to be deducted for claiming the benefit.
There are other exemptions available for disabled person or disabled person dependent on an individual under section 77 & 78.
Snapshot
Options | Proposed | Present | Implication |
Public Provident Fund | Total Sublimit of Rs 1 lacs except ELSS and Principal Repayment on housing loan which will not be eligible for any exemption | Any amount in any of the component for maximum upto Rs 1 lac with no Sublimits (Clarity still required for 5 year fixed deposits in banks and post office, ELSS and NSC) | Lesser option for investment in tax savings scheme. Life Insurance, ULIP and Tution fee for upto 2 children can not be part of this limit. Benefits on Housing loan Principal repayment component as well as investment in ELSS(Clarity required) will be withdrawn |
Employee Provident Fund | |||
Equity Linked Savings Scheme(ELSS) | |||
PrincipalRepayment on housing loan | |||
5 Year bank/post office deposit/NSC | |||
Approved pension Fund | |||
Unit Linked Insurance Plan | Total Sublimit of Rs. 50000/- | ||
Life Insurance Premium | |||
Tution Fee for upto 2 children | |||
Health Insurance Premium | Rs. 15000/- for health insurance premium paid for the family and Rs. 20000/- if paid for Senior Citizen | Life Insurance, ULIP, Health Insurance contribution and Tution fee for upto 2 children upto Rs.50000/- only. Earlier, exemption on contribution towards health Insurance Premium was separate i.e. over and above Rs. 100000/- | |
Infrastructure Bond (Section 80 CCF) | No clarity or mention in new DTC | Investment of Upto Rs. 20000/- in Infrastructure bonds. This limit apllies over and above all exemption | This limit may not be available |
Interest Repayment on Housing loan | Upto Rs. 150000/- | Upto Rs. 150000/- | No Change |
Medical treatment: | Upto Rs 40000/- and Rs 60000/- in case of Senior citizen. This will be allowed for treatment in Govt specified hospitals for self, spouse, dependent children and dependent parents. | Not available presently | Not beneficial, If at all any amount has been reimbursed by any Insurance Company or Employer then same has to be deducted for claiming the benefit. It is not going to benefit every year if you have reimbursement from health insurance provider or employer |
Total Benefits | Rs 1 lac under section 80+Medical insurance premium upto Rs.35000+Rs. 150000/- housing loan interest repayment+Rs. 20000/- in infrastructure bonds amounting to Rs. 285000/- | Rs 1 lac savings+Medical insurance premium or life insurance oremium or child education upto Rs. 50000+Rs. 150000/- housing loan interest repayment amounting Rs. 300000/- | Incremental savings option of only upto Rs 15000/- only against projection to considerable savings in initial drafts of DTC |
Treatment of Capital Gains
Capital gains on listed securities held for less than a year will be scaled down to 50% and then taxed at the person's marginal tax rate. There would be three different rates in the DTC regime—5%, 10% and 15% Capital gains on listed securities held for more than a year will not be subject to tax instead of flat rate of 15%. For securities held for less than a year, will be taxed at 5%, 10% or 15% depending on the marginal tax rate of the person.
Who will be worst effected
· Person who have been claiming deductions majorly in Life insurance premium, Tution fee for children education. Those who have commited higher amounts of premium towards ULIP will be worst hit.
· Those who have commitment towards health insurance primarily for tax savings rather than actual requirement .
· Those who have been claiming deductions mainly on Housing loan Principal repayment component.
· Risk savvy investors, who would have more likely invested in equities through Equity linked savings scheme rather than guaranteed low return investments. However clarity is still required on the same.
