New tax codeNew tax code denies women exemption edge

Makes LTA Taxable Every Year

TIMES NEWS NETWORK

New Delhi: The simplified Direct Taxes Code Bill introduced in Parliament on Monday,which will
become effective from April 1,2012,holds a few surprises,including withdrawal of tax deduction on the
principal component of housing loans.
The bill,which will replace the Income Tax Act 1961,seeks an increase in exemption threshold of
individuals from the current Rs 1.6 lakh to Rs 2 lakh and reduce corporate taxes to a flat 30%.
Revenue secretary Sunil Mitra,briefing the media on the bill,pointed out that only the interest
component of a housing loan will be considered for deduction.So,if your equated monthly instalments
add up to Rs 1.5 lakh and comprise an interest outgo of Rs 75,000 and an equal amount as
principal,you can avail deduction of only the interest or Rs 75,000.
Incentives have been withdrawn for women taxpayers by clubbing them with men,with income up to
Rs 2 lakh exempt.The earlier proposal was to place women taxpayers and senior citizens at an
exemption level of Rs 2.5 lakh.
There is also no mention of LTA or LTC in the exemptions,indicating that the sop has been done away
with.
Housing loan comprises 50% of the total deduction of up to Rs 3 lakh on savings.Other deductions
allowed include Rs 1 lakh on pension,PF and gratuity funds and up to Rs 50,000 for tuition fees of
kids,pure life insurance premium and health cover.

Some Pain,Some Gain

The Direct Taxes Code will be effective from April 1,2012.First return of income under its norms will be
filed after Mar 31,2013

Deduction of up to 3 lakh allowed

1 lakh on pension,PF and gratuity funds

Upto 50,000 for expenditure on tuition fees,pure life insurance premium and health cover
 3

Up to 1.5 lakh for interest paid on housing loan.No deduction on principal LTA will be taxed every year

Capital gains

Capital gains on listed securities held for more than a year will not be taxed.If held for less than a
year,it will be taxed at 5%,10% or 15% Securities transaction tax to continue

MF/ULIP

Income from equity-oriented mutual funds or ULIP shall be subject to tax @ 5%

Income of equity-linked MFs to attract 5% tax

New Delhi: The DTC operationalization has been put on hold for a year to give tax
practitioners,taxpayers and tax administrators time to become familiar with the new
provisions.The bill will now be referred to a parliamentary committee for examination.
The revenue secretary said government will also clarify later at what intervals income tax
slabs will be revised in the post-DTC phase.The changes proposed for women means a
woman taxpayer having an income of Rs 2 lakh will gain by only Rs 1,000 as against Rs
4,000 by her male counterpart.Similarly,a male taxpayer with Rs 10 lakh income will gain
by Rs 24,000 if the new system is introduced while a woman taxpayer will benefit by only Rs
21,000.
Major concessions have been offered to SEZ developers who have been demanding
extension of tax benefits beyond March 31,2011.The DTC proposes that developers be
allowed profit-linked deductions for all SEZs notified on or before March 31,2012.Units
housed in SEZs will be allowed deductions,if they commence business by March 2014.
Income from equity-oriented mutual funds or life insurance schemes shall be subject to tax
at 5% as against zero tax at present.
Capital gains on listed securities held for more than a year will not be subject to tax.For
those listed securities held for less than a year,it will be taxed at 5%,10% or 15% depending
on the marginal tax rate of the person.Securities transaction tax,however,will continue.In
the bill,income between Rs 2 and 5 lakh is proposed to be taxed at 10%,Rs 5-10 lakh at 20%
and 30% thereafter.
The concessions in DTC are estimated to result in a revenue loss of Rs 53,172 crore in 2012-
13 if the present rates are to be applied,revenue secretary Mitra said.The gross revenue
from direct taxes will come down from an estimated Rs 5.8 lakh crore to Rs 5.27 lakh crore
under the proposed code in that year.The bill,which will also replace the Wealth Tax Act
besides the IT Act,has been referred to a parliamentary committee for scrutiny and
suggestions.The new code will have 319 sections and 22 schedules as against 298 sections
and 14 schedules of the existing IT Act.
According to the present income tax slabs,income from Rs 1.6-5 lakh attracts 10% tax;from
Rs 5-8 lakh 20% and 30% beyond Rs 8 lakh.

Time To Rejoice: Direct Tax Bill Makes Long-Term Capital Gains Non-Taxable
Prabhakar Sinha | TNN

New Delhi: The Direct Tax Bill has brought a big relief for investors as it proposes to
continue with the existing provision of zero tax on long term capital gains and rationalize
short-term capital gains tax for annual income up to Rs 10 lakh.
In the direct tax code (DTC) discussion paper,the finance ministry had proposed to adopt
graded tax system for long term capital gains,on the basis of period of investments,while
doing away with the zero tax system.In graded tax system,if one remains invested for a
longer period in listed securities,the effective tax rate would be lower and vice-versa.Stock
market investors criticised this proposal as it would have adversely affected the net return
from investment in equities.
Even the revised discussion paper had proposed imposition of long-term capital gains
tax.But,surprisingly,the bill decided to continue with the existing system of zero tax.For the
short-term small investors,the bill has reduced the tax burden substantially."The new bill
is positive for the stock market,"Uday Ved,head of tax KPMG,said.
At present,tax on shortterm investment (for less than one year) is 15%.Along with
surcharge and education cess,the tax amount becomes 17%.This rate is applicable to
everybody,irrespective of the investor's income level falling in the different tax slabs of
10% or 20% or 30%.So,the big investor gains as he/she pays 17% tax on short-term capital
gains,instead of 30% or 20% (since his/her income level falls in that tax bracket).
But,in the new system,small investors having income between Rs 2 lakh and and 5 lakh,will
pay only 5% capital gains tax,less than the 10% tax they will have to pay in this income
slab.This is also less than one-third of the present short-term capital gains tax of 17%.
Investors having income between Rs 5 lakh and 10 lakh will pay 10% capital gains tax as
the bill has proposed to levy 20% income tax on them.However,big investors having income
over Rs 10 lakh will pay the short-term capital gains tax at 15% compared to an income
tax of 30%.The discussion paper had also proposed to introduce a new system for
calculating one year to decide the nature of an investment as short-term or long-term.

New scheme to avail tax exemption

Prabhakar Sinha | TNN

New Delhi: The Direct Tax Bill has proposed to introduce a new investment scheme to avail
tax exemption.In this scheme,an investor can invest up to Rs 50,000 in life insurance
policies,health insurance and children's tuition fees.
One can also invest up to Rs 1 lakh in a year in approved securities like employees provident
fund (EPF),public provident fund (PPF),pension fund and other approved securities.
At present,one can invest up to Rs 1.10 lakh in a host of instruments like EPF,PPF,pension
plan,insurance,equitylinked savings schemes (ELSS),Unit Linked Investment Plan (ULIP) and
children's tuition.Besides this,there is a separate category of Rs 10,000 to invest in
infrastructure bond and Rs 15,000 in health insurance.One can invest up to Rs 1,35,000 in
various instruments.
"Though,the limit has been marginally been increased,it has now been segregated in two
schemes.So the freedom to invest most of the income in one particular scheme has been
curtailed now,"deputy CEO and chairman of KPMG Dinesh Kanabar said.The increase in the
limit of investment from Rs 1.35 lakh to Rs 1.5 lakh will enable a big investor,having more
than Rs 10 lakh annual income,to save an additional Rs 4,500.His savings will go up from Rs
40,500 to Rs 45,000.

Impact on individuals
DTC for gender equality

The potential revenue loss from exemptions has forced the government to scrimp on the
hikes in the threshold levels of personal income tax.Yet the govt has estimated a revenue loss
of over 15,000 cr
THE PROPOSED NEW DIRECT TAXES LAW will take away the special
treatment that women have so far enjoyed and force individuals to overhaul the way in
which they plan their savings.Women will be put on the same footing as men.Tax-free savings
schemes will be fewer,with the government knocking off many from the among the 16 odd
available now.DTC has been cleverly packaged.The total amount of amount of tax deduction
that will be available to individuals,including interest on housing loans will be around 3
lakh,roughly the same as now.The new Bill has only tinkered at the fringes,with no significant
benefits for the aam admi.The re-packaging of the savings schemes will significantly lower the
savings potential,said Sandip Mukherjee,executive director,PwC.The exemption of 2 lakhs is
four time the per capita income,which is a generous limit, countered a senior tax department
official.The maximum a person can save on her tax burden is 24,000 and that too if she earns
more than 8 lakh a year.
The door on the tax breaks front has been shut for the principal amount paid on home
loans,bank deposits,equity linked savings schemes of mutual funds,national savings
certificate,infra bonds and unit linked pension plans.
The government has,however,opened a new window,empowering itself to notify schemes for
tax breaks and exempting such schemes from tax at all three stages
contribution,accumulation and withdrawals.This means pension schemes on a unit linked
platform could stage a backdoor entry.The other big blow is scrapping the incentives on leave
travel allowance and home travel concession.Only long term savings schemes such as the
public provident fund,new pension scheme,recognised provident funds will qualify for the tax
deduction of 1 lakh under what is now called Section 80 C of the Income Tax Act and be
exempt from tax at all stages.The move to allow an exempt exempt exempt (EEE) method of
tax treatment will help individuals build a retirement nest as the country does not have a
social security net,reckon officials.
Expenses on tuition fees,pure life insurance premia and health insurance too will qualify for
tax benefits,but within an overall limit of 50,000 a year.On top of this,individuals will
continue to enjoy a tax-deduction of upto 1.5 lakh on the interest they pay on home
loans.Political expediency has prevailed over economic logic to retain the incentive.Loans for
higher education will also be tax free.But there really no extra benefit for a tax payer on both
these counts.
A J Majumdar,Former Member CBDT and senior consultant with Ernst and Young said the
government need not have been liberal with tax exemptions for the middle class.A tax relief
of 4,000 by raising the exemption limit to 2 lakh does not mean much to this segment.The
revenue loss was avoidable. The savings for 3.5 crore taxpayers in the country would have
been substantially higher had the government accepted the tax slabs proposed in the original
DTC.The new Bill,placed in Parliament on Monday,marks a significant departure from the
original code that promised structural changes to end exemptions and broaden the tax base.
The potential revenue loss from exemptions has forced the government to scrimp on the
hikes in the thresholdlevels of personal income tax.Yet the government has estimated a
revenue loss of over 15,000 crore just on widening the slabs .
Here comes watered-down version

Under the new rule,annual deduction has been raised to 1.5 lakh for savings

Kartik Varma

ITS HERE! WITH THE AMOUNT OF anticipation that normally accompanies a hotly-
publicised Bollywood movie,the Direct Taxes Code (DTC) Bill is finally here.The DTC
will replace the Income Tax Act and ring many changes in personal and corporate
taxation.It will come into effect from April 1,2012.Here we analyse the impact of the
DTC on personal taxation for salaried individuals.
Following its original proposal last year,the government had issued a revised
discussion paper in June 2010.In its original form,the DTC was expected to bring about
farreaching changes in the personal taxation slabs and exemptions.But what has been
tabled in the Parliament appears to be a watereddown version of the DTC.
The big change is that the same tax slabs will apply to both men and women and the
tax exempt savings have been recast.
The Income Tax Act offers individuals an annual deduction of 1 lakh under 80C that
can be used for instruments such as PPF (up to 70,000),PF,NPS,ELSS,premium for pure
life insurance or ULIP,principal repayment of home loan,NSC,fixed deposits with a
maturity of five years,payment of tuition fees for full-time education for up to 2
children.In the current year,one can get an additional deduction of 20,000 for
investing in certain notified infrastructure bonds under 80CCF.Additionally,80D gives a
deduction of 15,000 towards medical allowance.
Under the DTC Bill,the annual deduction has been raised to 1.5 lakh.We expect more
details on this deduction.It appears that investments in PPF,PF,NPS,pure life insurance
policies,savings schemes as notified by the government are eligible for this deduction
under EEE category.EEE refers to tax exemption at time of investment,accumulation
and withdrawal.Based on available information,it is unclear whether ELSS and
premium for ULIP will be eligible for deduction or not.If they are eligible for
deduction,it will only be under the EET category exempted from taxation at time of
investment and accumulation,but taxable at the time of withdrawal.Deduction for
principal repayment of home loans has been done away with.