Changes in New Direct Tax Code (DTC)

In Tax

The Government has come out with new revised Direct Tax Code (pdf) and there are many
changes which might look good to investors finally. Most of the people were not happy with the
old tax code as it made some products taxable like PPF , Endowment Plans etc, which investors
were totally worried about. Now Govt has made some changes earlier which looked extreme to
investors and they were not happy about it, however still there are some things which will pinch
investors. Old Direct Code tax was challenged and the govt reconsidered the Old Direct Tax
Code and has finally come up with this new revised set of rules which I will list down here.

Pure Life Insurance Products/Pension Products/PPF/EPF/NPS

Finally, under New Tax Code:  PPF, EPF, NPS, Pure Insurance products and Pension Products
have come under EEE regime, which means that the amount you contribute, & any return or
interest generated and the final maturity is exempt from tax. The major change in the revised
Direct Tax code is that at the time of maturity of these products, you don’t have to pay tax on the
amount you get. In the old Code the maturity was taxable.

Endowment/Moneyback and ULIP’s

These products are under EET regime, so the money you get at the end will be TAXABLE. 
(More)

Real Estate

Existing and prospective real estate buyers have some thing to cheer about. In the Revised Tax
code, Interest will still be exempted upto 1.5 lacs, but principal would not be getting any place in
sec 80C , which is again not a big problem as generally 80C gets filled up with EPF, Insurance,
children’s tuition and other products for most people.  (Returns from Real Estate)

Another big change which is there is that now on a rented flat, the gross rent for taxation would
be actual rent received. Earlier, if you had not let out your flat and it was vacant, you still had to
pay tax on the notional rent (the old draft it was said that it can be upto 6% of the value of the
property.) But now, with revised tax code you don’t have to pay any tax if you don’t get any rent
from your rented (and second house) house  Would be nice to see your views on controversy of
Buying vs Renting

Existing Investments

Incase you have any existing Investments, which enjoyed EEE method of taxation, they would
be treated the same way for their full tenure.

Capital Gains on Equity

There are some big changes here. For sure your equity investments in shares and Equity mutual

funds are going to be taxed now But in a different way. The old tax code suggested that
short-term capital gains on Equity should be added to the income and taxed at applicable tax
rates and long-term gains (above 1 yrs) should get Indexation benefits and then they should be
added to your income for taxation purpose.

However the new revised tax code has changed this and a new concept of “Deductions” is in . As
per this rule , for any long-term capital gains, you will get certain specified deductions which
will be some percentage of your profits, and then after deducting these, the rest will be added to
your income and then taxed at applicable rates. The indexation concept is now gone . The short-
term capital gains still gets added to income and then taxed . The short-term capital gains will
actually be now beneficial to people who earn 10 lacs of less , as earlier they had to pay 15%
tax , but now as they have to pay 10% tax as per the new slab , the tax on short-term capital gain
part will be 10% only .There is no enough clarity on the deductions percentage as of now. (Using
looses to reduce your tax)

One another major change is the definition of the holding period. As of now, it will be 1 yr from
the end of the financial year when you bought your shares which means that if you bought your
shares or mutual funds on 5th of Apr 2010 , then the end of that financial year would be 31st Mar
2011 and then 1 yr from that 31st Mar 2011 would be 31st Mar 2012 , so effectively your
Holding period can range from 1 yrs to 2 yrs depending on when you buy the shares, so the
short-term capital gain would be if you sell it before your holding period and long-term capital
gains would be if you sell it after your holding period .

Capital Gains on Gold , Debt Funds , Real Estate

The long-term gains on these assets would now be after 1 yrs . Earlier it was 3 yrs. The
long-term capital gains would qualify for Indexation as it was applicable earlier and short-term
capital gains will directly be added to income and taxed . Earlier the base date for indexation
values was taken from 1 Apr 1981, however now the base date shifts to Apr 1, 2000. This will
now reflect the inflationary changes in these asset classes in a better way.

What happens to the properties very old like 30-40 yrs ? Some thing new has come up !! , your
original indexed cost price wont be considered , but the price on Apr 1 , 2000 would be
Applicable, as per my understanding .

Interesting : So what about those who have invested in Equity after Mar 31 , 2010 ? If they sell
it before 31st Mar 2011 , they will pay short term capital gains of as high as 30% or 20%
(depending on which slab you come in this year) , OR the other option is to hold it and sell it
later so that New Direct Code applies to you and you pay just 10% on the profits considering you
taxable income is less than 10 lacs .
Highlights of new Direct Tax Code (DTC)

>> Tuesday, September 21, 2010

Highlights of The New direct Tax code is given below

   1. Tax exemption Limit enhanced for Individuals to 200000

   2. For senior Citizen limit is 250000.
   3. There is no addition limit for Women.
   4. 200000-500000=10% ,500000-1000000=20% and more than 1000000 30 %
   5. Company tax rate is 30%
   6. There is no cess and surcharge new direct tax code
   7. MAT(minimum alternative tax ) proposed at 20% present rate is 18% plus cess and
surcharge
   8. Capital gain Long term is now from asset hold more than one years.
   9. Indexation Base year to be changed to 01.04.2000 from 01.04.1981 so no tax on gains
realised between 1981 to 2000.
  10. Tax applicable on capital gain from long term sale of securities ,presently it is exempted.
  11. Proposed applicable date is 01.04.2012 (FY 2012-13)
  12. The Government has also proposed to restore back the taxation of retirement savings, in
the nature of provident fund contributions and pure life insurance and annuity products, to the
Exempt-Exempt-Exempt scheme from the earlier proposition of Exempt-Exempt-Tax scheme
under the revised discussion paper in the DTC
  13. No Tax on Long term capital gain on securities & equity linked mUtual funds,For short term
capital gain tax rate is 50 % of normal slab rate applicable to the asseessee.
  14. in case of short term assets, there is no relaxation to the tax payer and tax will be required
to paid as in case of any other ordinary income
  15. The code introduces a Rs 50,000 enhanced deduction for savings in addition to old 100000
deduction.
  16. Interest on house loan benefit continues ,HRA benefit also have a place in DTC .

The government on Monday introduced in Parliament a bill to overhaul its archaic direct tax
codes, a key reform aimed at simplifying procedures for investors and bring in more revenue by
widening the tax net.

This switchover to DTC with higher exemption limits and lower corporate tax, Revenue
Secretary Sunil Mitra says, will cost the government a revenue loss of Rs 53,172 crore on
reduced rates and a loss of Rs 38,829 crore in the first year from corporate tax rate. “India's
direct tax collection for 2011-12 is expected to be at Rs 5.27 lakh crore in the first year, if
current rates hold,” he adds.The bill proposes to cut tax rates, replace profit-linked exemptions
for companies with investment-linked incentives and simplify rules on corporate mergers,
aimed at creating a tax code that can support growth in Asia's third-largest economy.
The dividend distribution tax (DDT) for holding companies has been removed up to any level
and the securities transaction tax (STT) rate has been kept same at 0.25%. The new code would
also scrap cess and surcharge.

The bill will now be applicable from April 1, 2012, instead of the earlier proposed March 1,
2011. This delay, Mitra says will allow time for switchover.

Read more: http://taxlinks.blogspot.com/2010/09/highlights-of-new-direct-tax-code-

dtc.html#ixzz1BqwKezYe
Harish Dhall
Under Creative Commons License: Attribution

I TAX RATES FOR INDIVIDUALS OTHER THAN II & III BELOW

Upto 1,60,000                         - Nil
1,60,000 to 5,00,000               - 10% of the amount exceeding 1,60,000
5,00,000 to 8,00,000               - Rs.34,000 + 20% of the amount exceeding
5,00,000
8,00,000 & above                    - Rs.94,000 + 30% of the amount exceeding
8,00,000
II TAX RATES FOR RESIDENT WOMEN BELOW 65 YEARS

Upto 1,90,000                         - Nil

1,90,000 to 5,00,000               - 10% of the amount exceeding 1,90,000
5,00,000 to 8,00,000               - Rs.31,000 + 20% of the amount exceeding
5,00,000
8,00,000 & above                    - Rs.91,000 + 30% of the amount exceeding
8,00,000

III TAX RATES FOR INDIVIDUAL RESIDENTS AGED 65 YRS AND ABOVE
Upto 2,40,000                         - Nil
2,40,000 to 5,00,000               - 10% of the amount exceeding 2,40,000
5,00,000 to 8,00,000               - Rs.26,000 + 20% of the amount exceeding
5,00,000
8,00,000 & above                    - Rs.86,000 + 30% of the amount exceeding
8,00,000
There is no surcharge in the case of every individual, Hindu undivided family,
Association of persons and body of individuals.
EDUCATION CESS

The amount of Income-tax shall be increased by Education Cess of 3% on Income-

tax.

EXEMPTIONS/DEDUCTIONS FROM SALARY

1.  VOLUNTARY RETIREMENT – 10(10C)

Amount received or receivable (ie.,in instalments) by an employee on his voluntary

retirement in accordance with any scheme of Voluntary Retirement is exempt to the
extent of Rs.5,00,000, provided the VRS is in accordance with Rule 2BA of IT Rules.
However no 89(1) relief can be claimed.
2.  HOUSE RENT ALLOWANCE EXEMPT U/S.10(13A) – Read with Rule 2A of IT Rules
1962

a)   Actual HRA received                                :  Rs.xxxx

b)   Rent paid in excess of 10% of Salary      :  Rs.xxxx
c)   50% of Salary in Metro Cities or
      40% of Salary in other cities                   :  Rs.xxxx
      Least of a), b), c) is exempt.

 NOTE: Here Salary means Basic Salary as well as DA if the terms of employment

so provide.
3.  CONVEYANCE ALLOWANCE: 

Any allowance granted to meet the expenditure incurred wholly, necessarily and
exclusively on conveyance in performance of the duties of office and so certified by
the employer is exempt u/s.10(14).

4.  TRANSPORT ALLOWANCE:

Any allowance granted to an employee to meet the expenditure for the purpose of
commuting between the place of his residence and the place of his duty to the
extent upto Rs.800/- per month is exempt u/s.10(14).

5.   MEDICAL REIMBURSEMENT:

An amount of Rs.15,000 or the actual amount reimbursed by the employer

whichever is less is exempt u/s.17(2).
6.   PROFESSION TAX :
Profession Tax levied by the State Government is allowable as a deduction from
Gross Salary provided it has been paid.
DEDUCTIONS FROM HOUSE PROPERTY
1.   DEDUCTION U/S.23(1)   : For let out property, amount actually paid by the
owner towards taxes levied by any local authority in respect of the property is
deductible from Annual value(taxes pertaining to any previous years).
2.  DEDUCTION U/S.24(a) : For let out property, deduction of 30% of the Net
Annual Value is allowed. No separate deduction for Repairs, Collection Charges,
Insurance Premium, Annual Charge and Ground Rent.
3.   INTEREST ON BORROWED LOAN(U/S.24(b)):
FOR SELF OCCUPIED PROPERTY
a.   If Property is acquired or constructed with loan taken after 01/04/99 and
construction is completed within 3 years from the end of the financial year in which
the capital was borrowed – Rs.1,50,000 or actual interest paid/payable whichever is
less is deductible.

b.   If new housing loan is taken for repayment of old loan (old loan taken after
1/4/99) – Rs.1,50,000 or actual interest paid/payable whichever is less is allowed
as deduction.

c.   If Property is acquired or constructed with loan taken before 01/04/99,

Rs.30,000 or actual interest paid/payable whichever is less is allowed as deduction.

d.   If loan taken for Repairs, renewal, reconstruction of property, Rs.30,000 or

actual interest paid/payable which ever is less is allowed as deduction.
FOR LET OUT PROPERTY, actual interest paid/payable can be claimed as
deduction.
ONLY OWNER OF THE HOUSE PROPERTY CAN AVAIL THE ABOVE
DEDUCTIONS.
CAPITAL GAINS:
With effect from 01/10/2004, Long Term Capital Gains arising on sale of equity
shares or unit of equity oriented fund through recognized stock exchange is exempt
if such transaction is chargeable to Securities Transaction Tax (u/s.10(38)).
Short Term Capital Gains arising on sale of equity shares or unit of equity oriented
fund through recognized stock exchange is subject to tax at the rate of 15% if such
transaction is chargeable to Securities Transaction Tax.
EXEMPTION U/S.54EC:
The Capital Gain arising out of sale of long term capital asset can be invested in
National Highways Authority of India, Rural Electrification Corporation Limited,
within six months from the date of sale subject to a ceiling of Rs.50 lakh during any
financial year.
(Lock-in period is 3 years)
Cost Inflation Index for the F.Y.2010-11 is 711.
STANDARD DEDUCTION FOR FAMILY PENSION U/S.57(iia):
An amount of Rs.15,000 or 33&1/3% of family pension whichever is less is allowed
as deduction. If an assessee receives arrears of family pension, then Relief
u/s.89(1) can be claimed by him.
Family Pension received by the widow or children or nominated heirs, as the case
may be, of a member of the armed forces(including para-military forces) of the
union, where the death of such member has occurred in the course of operation is
exempt.
EXEMPTIONS – OTHER SOURCESAny income by way of Dividends from company,
Income received in respect of units from the Unit Trust of India, Income received in
respect of the units of a mutual fund are exempt.

DEDUCTIONS FROM GROSS TOTAL INCOME (CHAPTER VIA):

Sl.No. I.T. Nature of Deduction Amount of
Sec. deduction
1. 80 CCE Limit on Deduction u/s.80C, 80CCC & Maximum
a. 80 C 80CCD        overall
Life Insurance Premia, PF, PPF, NSC, ELSS, Units Deductions
of Mutual Fund referred to u/s.10(23D), Tuition allowed u/s.
Fees(max. 2 Children), Repayment of Principal of 80C,
Housing loan, Bank Fixed Deposit of 5 yrs period, 80CCC &
b. 80 CCC notified Bonds of NABARD, Deposit in an account 80CCD
c. 80 CCD under Senior Citizens Savings Scheme rules, 5 is Rs. 1,00,000
year time deposit in an account under Post Office
Time Deposit Rules, 1981 etc.
Premium paid towards approved Pension Fund
(like LIC’s Jeevan Suraksha) max. 1 lakh.
Contribution to Central Government Pension
Schemes. Upto 10% of salary with matching
contribution from
Government.                                                     
2. 80 CCF Amount paid/deposited as subscription to long- Rs. 20,000
term infrastructure bonds being notified by the
Central Government.
3. 80 D (a) Medical Insurance Premium paid by an Upto Rs.15,000
individual/HUF by any mode of payment other
than cash to effect or keep in force an insurance
on the health of the assessee(self) or his
family(spouse & dependent children) for policies
taken from General Insurance Corporation /other Upto Rs.15,000
approved Insurance Regulatory and Development
Authority or any contribution made to the Central
Government Health Scheme. Upto Rs.20,000
(b) Medical Insurance Premium paid by an
individual/HUF by any mode of payment other
than cash to effect or keep in force an insurance
on the health of his/her parent or parents for
policies taken from General Insurance
Corporation /other approved Insurance
Regulatory and Development Authority or any
contribution made to the Central Government
Health Scheme.
 (c) For Senior Citizens
3. 80 DD (a) Any expenditure for Medical, Nursing & Rs.50,000
Rehabilitation incurred on dependant suffering (Rs.1,00,000 if
from permanent disability including blindness, the disability is
mental retardation, autism, cerebral palsy or severe
multiple disabilities exceeding
(b) Deposits under LIC, UTI’s Scheme & other 80%)
IRDA approved insurers for the benefit of
physically handicapped dependent
4. 80 DDB (a) Actual expenditure incurred on Medical Upto Rs.40,000
treatment of Self or dependant or a member of
HUF suffering from terminal diseases like Cancer,
AIDS, Renal failure etc. Upto Rs.60,000
(b)  For Senior Citizens(self or dependent on
whom expenditure on medical treated is taken)
5. 80 E Interest on loan taken from Financial/Charitable Actual Interest
Institutions for Self/Spouse/Children for pursuing repaid
Higher Education (for a max. period of 8 yrs)
80 G (a) Donations made to National Defence Fund, 100% of
6. Prime Minister’s Relief Fund, approved Funds of Donation
reputed Educational Institutions, National Trust
for Welfare of persons with Autism, Cerebral 50% of
Palsy etc. Donation
(b) Donations made to Jawaharlal Memorial restricted to
Fund, PM’s Drought Relief fund, Any approved 10% of
Charitable Institution/Trust, Religious Adjusted Gross
Institutions, a corporation established by the Total Income 
Government for promoting interest of the
members of a Minority Community
7. 80 GG Deduction in respect of rents paid, provided the 25% of income
assessee is not in receipt of HRA and no house is or rent paid in
owned by self, spouse, minor child or HUF in the excess of 10%
place of work subject to filing of declaration in of income
Form No.10BA    or ceiling of
Rs.24,000 p.a
whichever is
less
8. 80 U Persons suffering from Permanent Physical Rs.50,000
Disability as specified in Rule 11D (Rs.1,00,000 in
case of severe
disability)
FRINGE BENEFIT TAX (FBT)
In view of discontinuance of Fringe Benefit Tax from A.Y.2010-11 onwards, the
value of specified fringe benefit and amenity is not chargeable to tax in the hands
of employer. Consequently under sub-clause (vi) of Sec.17(2), provides that the
value of any specified security or sweat equity shares allotted or transferred,
directly or indirectly, by the employer, or former employer, free of cost or at
concessional rate to the employee is a perquisite chargeable to tax in the hands of
the employee.
PENALTY U/S.271F:  If a person who is required to furnish a return of income as
required under section 139(1) or by the proviso to that sub-section, fails to furnish
such return before the end of the relevant assessment year, shall be liable to pay
by way of penalty a sum of Rs.5,000.
INTEREST U/S.234A: Where in any financial year, the return of Income of any
assessment year u/s.139(1) or 139(4) or in response to a notice u/s.142(1), is
furnished after the due date as specified in sub-section 1 of section 139, or is not
furnished, the assessee shall be liable to pay simple interest at the rate of one
percent for every month or part of a month comprised in the period commencing on
the date immediately following the due date.
INTEREST U/S.234B: Where an assessee who is liable to pay advance tax(where
tax liability exceeds Rs.10,000 after TDS) under section 208 has failed to pay such
tax or, where the advance tax paid by such assessee under the provisions of
section 210 is less than 90% of the assessed tax, the assessee shall be liable to pay
simple interest at the rate of one percent for every month or part of a month
comprised in the period from the 1st day of April following the financial year.
INTEREST U/S.234C: Where an assessee other than a Company, who is liable to pay
advance tax (where tax liability exceeds Rs.10,000 after TDS)under section 208 has
failed to pay such tax or,
1)   The advance tax paid by the assessee on his current income on or before the
15th day of September is less than 30% of the tax due on the returned income or
the amount of such advance tax paid on or before the 15th day of December is less
than 60% of the tax due on the returned income, then, the assessee shall be liable
to pay simple interest at the rate of one percent per month for a period of three
months on the amount of the shortfall from 30% or, as the case may be, 60% of
the tax due on the returned income.

2)   The advance tax paid by the assessee on his current income on or before the
15th day of March is less than the tax due on the returned income, then, the
assessee shall be liable to pay simple interest at the rate of one percent on the
amount of the shortfall from the tax due on the returned income.
DUE DATES FOR FILING RETURN OF INCOME : All Individuals/HUF/Firms
deriving Income from Salary, House Property, Capital Gains, Business or Other
Sources and not covered under section 44AB are required to file the Return of
Income by 31st July of the assessment year. All Tax Audit Cases covered under
section 44AB & Companies are required to file the Return of Income by 30th
September of the assessment year.
MODE OF FILING INCOME-TAX RETURNS : All Individuals, HUFs & Partnership
Firms who are required to get their accounts audited u/s.44AB are required to
compulsorily file their income-tax return in ITR-4 electronically with or without
digital signature. All companies are required to compulsorily file their income tax
return electronically in ITR-6 with Digital signature.
PERMANENT ACCOUNT NUMBER: Every assessee is required to obtain 10 Alpha
numeric Permanent Account Number (PAN) and quote the same in his returns,
challans & correspondence. PAN can be obtained by applying in new Form No.49A
at the designated Service Centres of UTITSL OR NSDL(Log on to our website). PAN
is essential for processing the Return of Income and for giving credit for taxes paid.
If a person who is required to quote his Permanent Account Number fails to do so
or intimates or quotes false number, the Assessing Officer may direct that such
person shall pay, by way of penalty, a sum of Rs.10,000.(S.272B)