The New Direct Tax Code (DTC)

The New Direct Tax Code (DTC) is said to replace the existing Income Tax Act of 1961 in India. It is expected to be passed in the monsoon session of 2010 and is expected to be enforced from 2011 2012. During the budget 2010 presentation, the finance minister Mr. Pranab Mukherjee reiterated his commitment to bringing into fore the new direct tax code (DTC) into force from 1st of April, 2011, but same could not be fulfilled and now it will be applicable from 1st April, 2012. DTC bill was tabled in parliament on 3oth August, 2010. There are big changes, 416 hits) Here are some of the salient features and highlights of the DTC: 1. DTC removes now in monsoon session and There are now much less benefits as compared to what were in the original proposal. Direct Tax code bill (1.1 MiB most of the categories of exempted income. Unit Linked Insurance Plans (ULIPs), Equity Mutual Funds (ELSS), Term deposits, NSC (National Savings certificates), Long term infrastructures bonds, house loan principal repayment, stamp duty and

registration fees on purchase of house property will loose tax benefits. 2. Tax saving based investment limit remains 100,000 but another 50,000 has been added just for pure life insurance (Sum insured is atleast 20 times the premium paid) , health insurance, mediclaims policies and tuition fees of children. But the one lakh investment can now only be done in provident fund, superannuation fund, gratuity fund and new pension fund. 3. The tax rates and slabs have been modified. The proposed rates and slabs are as follows: Annual Income Tax Slab Up-to INR 200,000 (for senior Nil citizens 250,000) Between INR 200,000 to 500,000 Between INR 500,000 to 10% 20%

1,000,000 Above INR 1,000,000 30% Men and women are treated same now 4. Exemption will remain same as 1.5 lakhs per year for interest on housing loan for self-occupied property.

5. Only half of Short-term capital gains will be taxed. e.g. if you gains 50,000, add 25,000 to your taxable income. Long term capital gains (From equities and equity mutual funds, on which STT has been paid) are still exempted from income tax. 6. As per changes on 15th June, 2010, Tax exemption at all three stages (EEE) savings, accretions and withdrawalsto be allowed for provident funds (GPF, EPF and PPF), NPS (new pension scheme administered by PFRDA), Retirement benefits (gratuity, leave encashment, etc), pure life insurance products & annuity schemes. Earlier DTC wanted to tax withdrawals. 7. Surcharge and education cess are abolished. 8. For incomes arising of House Property: Deductions for Rent and Maintenance would be reduced from 30% to 20% of the Gross Rent. Also all interest paid on house loan for a rented house is deductible from rent. Before DTC, if you own more than one property, there was provision for taxing notional rent even if the second house was not put to rent. But, under the Direct Tax Code 2010 , such a concept has been abolished. 9. Tax exemption on LTA (leave travel allowance) is abolished.

10. Tax exemption on Education loan to continue. 11. Corporate tax reduced from 34% to 30% including education cess and surcharge. 12. Taxation of Capital gains from property sale : For sale within one year, gain is to be added to taxable salary. For long term gain (after one year of purchase), instead of flat rate of 20% of gain after indexation benefit, new concept has been introduced. Now gain after indexation will be added to taxable income and taxed at per the tax slab. Base date for cost of acquisition has been changed to 1st April, 2000 instead of earlier 1st April, 1981. 14. Medical reimbursement : Max limit for medical reimbursements has been increased to 50,000 per year from current 15,000 limit. 15. Tax on dividends: Dividends will attract 5% tax. 16. Bad news for NRIs : As per the current laws, a NRI is liable to pay tax on global income if he is in India for a period more than 182 days in a financial year. But in new bill, this duration has been changed to just 60 days. This is very unfair to Seafarers. To avoid any income tax, an Indian sailor employed with a foreign ship will have to stay

maximum for 60 days in India.

1. 2. 3. 4. 5. 6.

Direct Tax Code DTC Highlights No need to submit LTA proofs to employer File Income Tax Return Form Online Income tax calculator for India 2010 Budget update Income Tax Calculator for 2010-11

How to save L.T.C.G

Buying and Selling of Property, Plots, Flats, Land, Independent Houses, Floors or any other form of residential property is a frequent activity in present scenario. Especially with so much activity in the real estate sector, it has been considered to have given good returns. The attractive home loan schemes have made it even more lucrative. However, the transactions are often subject to complicated tax structure. Here is one case that may solve some of your queries.

When you are about to sell a piece of land for a profit, it is quite likely that Capital Gains Tax would be imposed in the form of Long Term Capital Gain (LTCG). This remains a concern for a lot of people that how can they possibly avoid Capital Gains Tax arising out of the Long Term Capital Gain. In the present article we are discussing an example case. In the present case the example assessee, an individual, is in the process of transferring a long term capital asset not amounting to a residential house and the proceeds are to be utilised to buy a capital asset amounting to residential house. The treatment of capital gain on the transfer of capital asset not amounting to residential property is under consideration. Section 54F of the Income tax Act 1961 deals with the current situation. Where the assessee is an individual, and capital gain arises from the transfer of any long term capital asset (not being a residential house) which in the present case is a piece of land (not amounting to agricultural land) and the assessee has within a period of one year before or after the date on which the transfer of the original asset has taken place, has purchased a residential house (new asset) or has constructed a residential house within three years; the capital gain shall be dealt as per the following conditions:

1.If

the cost of the new asset is more than the net

consideration received in respect of the original asset, the whole of such capital gain shall not be charged to capital gain tax as per section 45 of the Income Tax Act.
2.If

the cost of the new asset is less than the net

consideration in respect of the original asset, so much of the capital gain as bears the cost of the new capital asset shall not be charged to capital gain tax as per section 45 of the Income Tax Act. However, the capital gains exemption enumerated in (a) & (b) above is subject to the some conditions. The benefits as discussed shall not be available if: 1. If the assessee owns more than one residential house, other than the new asset, on the date of transfer of the original asset. 2. If the assessee purchases any residential house, other

than the new asset, within a period of one year after the date of transfer of the original asset 3. If the assessee constructs any residential house, other

than the new asset, within a period of three years after the date of transfer of the original asset.

Income tax calculator for India

The new slabs for Income Tax in India were proposed in the Union Budget 2010 by Finance Minister, Pranab Mukherjee. Given the new tax slabs that are expected to be in force from the FY 2010-11 or Assessment Year 2011-12 we have prepared an Income Tax Calculator for financial year 2010-11 for your convenience.

Broadly speaking, the tax slabs exempt all income below INR 1,60,000 whereas the income between INR 1,60,000 and INR 5,00,000 is proposed to be taxed at the rate of 10%. The next income tax slab lies between INR 5,00,000 and INR 8,00,000 for which the rate of taxation is 20%. Finally, all income above INR 8,00,000 would be taxed at the rate of 30%.

Also, the minimum turnover limit for small businesses for mandatory audit has been raised to INR 60,00,000. Similarly, in case of individuals, professional receipts exceeding INR 15,00,000 would be subjected to compulsory audit for filing of Income Tax Return. Using the income tax calculator 2010-11 attached with this post you can see that for most of the individuals having income levels above INR 3,00,000 there is a steady reduction in the overall income tax liability. This is a clear step to reduce the overall tax burden from the shoulders of Indian Middle class which typically has income between 3,00,000 to 10,00,000 rupees per-annum and especially so for the salaried people.

File Income Tax Return Form Online

Indian government has taken steps to make income tax return filing easier and simple. In past few years there have been many improvements and use of technology by income tax department like introduction of E-filing, online tax payment, digital signature etc.

In order to spread the knowledge, I am writing steps on how you can file income tax return online yourself.

Calculate Income tax You can calculate your income tax payable using the income tax calculator provided at this page: Income tax calculator. Also make sure that you also see whether the advance tax has been paid on time (See row 101-104 in income tax calculator). In case you have paid the full tax but not paid on time as per the advance tax schedule, you are liable to pay interest under section 234 A, 234 B and 234 C. See this page for details. Pay your tax online Whatever pending amount you need to pay can be paid online on this link: Pay Tax Online (Use only Internet explorer for this). Select challan type as CHALLAN NO. /ITNS 280 and continue.

Select (0021) INCOME-TAX (OTHER THAN COMPANIES) in tax applicable field and Select (300) SELF ASSESSMENT TAX in type of payment. Select bank through which you want to pay. You also pay through your net banking login on Axis Bank, Oriental Bank of Commerce, State Bank of Patiala, Bank of Baroda, IDBI Bank, State Bank of Mysore, Bank of Maharashtra, State Bank of Hyderabad, State Bank of Saurashtra, Union Bank of India, Allahabad Bank, Dena Bank, Syndicate Bank, ICICI Bank, State Bank of India, Punjab National Bank, Indian Overseas Bank, Canara Bank, Indian Bank, Bank of India, Corporation Bank, State Bank of Bikaner & Jaipur, State Bank of Travancore, State Bank of Indore, Vijaya Bank and HDFC Bank.

PERSONAL INCOME TAX (Amount in lakh) 10% Now DTC I 1.6-5 1.6-10 20% 5-8 10-25 30% 8 & above 25 & above

Likely

2-5

5-10

10 & above

# Exemption limit to be raised from 1.6 lakh to 2 lakh # Further relief for women, senior citizens expected # Corporation tax rate stays at 30%, but no cess or surcharge proposed # MAT rate to be raised from 18% to 20% of book profits The limit for exemptions for salaried people is Rs. 2 lakh, while that for senior citizens is Rs. 2.5 lakh. The earlier DTC draft had proposed to reduce the corporate tax to 25 per cent from the present 30 per cent but the revised direct tax code has been kept the same at 30%. Also, unlike the original proposal that sought to

impose minimum alternate tax (MAT) on gross assets, which drew strong criticism, the government has now decided to continue with the system of levying MAT on book profits. The MAT rate is, however, proposed to be increased from the present 18 per cent to 20 per cent. The new Code comes into effect from April, 2011. After the approval of the Cabinet, the decks are cleared for tabling the legislation in the Monsoon Session of Parliament so

that the new Act ushering in reduced tax rates and exemptions may come into effect from next fiscal. When enacted, the Code will replace the archaic Income Tax Act and simplify the whole direct tax regime in the country. The Code aims at reducing tax rates, but expanding the tax base by minimising exemptions. The Finance Ministry had earlier come out with a draft on the (Direct Tax Code) DTC bill, some of whose provisions drew strong criticism from industry as well as the public. To address those issues, the ministry brought out the revised draft, dropping earlier proposals of taxing provident funds on withdrawal and levying Minimum Alternate Tax on corporates based on their assets. As of now, it is proposed to provide the EEE (Exempt-ExemptExempt) method of taxation for Government Provident Fund (GPF), Public Provident Fund (PPF) and Recognised Provident Funds (RPF) , the revised DTC released by the Finance Ministry said. The revised draft also puts pensions administered by the interim regulator PFRDA, including pension of government employees who were recruited since January 2004, under EEE treatment.

The first DTC draft had proposed to tax all savings schemes including provident funds at the time of withdrawal bringing them under the EET (Exempt-Exempt-Tax) mode. Under the EEE mode, the tax exemption is enjoyed at all the three stages investment, accumulation and withdrawal. The revised proposal has also made it clear that tax incentives on housing loans will continue. Payment on interest on housing loans up to Rs. 1.5 lakh will continue. The earlier draft was silent on housing loans.

2010 Budget update

NEW DELHI: The government is confident the proposed Direct Taxes Code (DTC) will increase the income tax base, which currently stands at around 3.25 crore, as well as boost economic growth and equity. "We do hope that tax base will widen... Minimum exemptions will lead to higher tax-GDP ratio," Revenue Secretary Sunil Mitra said here.

However, he said widening of the tax base is not specific to the DTC, the Bill on which was tabled in the Lok Sabha yesterday. "Widening of tax base has been a tax policy," he said, adding that the DTC proposals will lead to greater equity as well as higher economic growth because of the improved tax-GDP ratio. The direct tax-GDP ratio increased from 2.97 per cent at the start of this decade to 6.45 per cent in 2009-10. The government plans to roll out the new direct tax regime from April 1, 2012. The proposed increase in exemption limits in the Direct Taxes Code (DTC) Bill will benefit an overwhelming 96 per cent of taxpayers, who earn less than Rs 5 lakh a year. The DTC Bill, which proposes to exempt income up to Rs 2 lakh from payment of income tax, compared to the existing limit of Rs 1.6 lakh, was introduced by Finance Minister Pranab Mukherjee in the Lok Sabha on Monday.

Mitra had earlier said that 95.75 per cent of India's 3.25 crore taxpayers are in the income slab of Rs 1 lakh to Rs 5 lakh. They pay around 30 per cent of our total taxes. "The slab of Rs 8 lakh and above accounts for 2.2 per cent of our taxpayers, but they pay 60 per cent of the taxes. That leaves 10 per cent which is in the Rs 5 lakh to Rs 8 lakh (bracket)," he had said. According to the Bill, annual income from Rs 2-5 lakh is likely to attract tax at the rate of 10 per cent, while the Rs 5-10 lakh bracket will be taxed at 20 per cent and income above Rs 10 lakh at 30 per cent. At present, income between Rs 1.60 lakh and Rs 5 lakh attracts 10 per cent tax, while the rate is 20 per cent for the Rs 5-8 lakh bracket and 30 per cent for above Rs 8 lakh. People earning more than Rs 10 lakh a year may save up to Rs 41,040 in income tax, if the slabs proposed by the DTC Bill come into effect, according to experts.

Similarly, the tax burden would reduce by Rs 21,540 for those earning an annual income between Rs 5 lakh and Rs 10 lakh, while those making Rs 2 lakh to Rs 5 lakh could be richer by Rs 7,660.

New Delhi, Aug 30: Once the Direct Code Tax (DTC) comes into effect, people could get richer by Rs 7,000 to Rs 40,000 based on respectiveincome slab as the landmark DTC bill aims at reducing the tax burden besides making the system more simplified and modern. People earning more than Rs 10 lakh could save up to Rs 41,040 in income tax while those earning annual income between Rs 5 lakh and Rs 10 lakh would get Rs 21,540 richer, a news agency reported quoting experts. Those making Rs 2 lakh to 5 lakh could be richer by Rs 7,660,

informed Deloitte Haskins & Sells Partner Neeru Ahuja. The landmark bill, which received Cabinet clearance on Thursday, Aug 26, was presented in the Lok Sabha by the Finance Minister Pranab Mukherjee on Monday, Aug 30. The new provisions under the Direct Tax Code are:

Tax for income between Rs 2 to 5 lakh - 10 per cent Tax for income between Rs 5 to 10 lakh - 20 per cent Tax for income over Rs 10 lakh - 30 per cent Corporate tax has been kept at 30 per cent

The limit for exemptions for salaried people is Rs 2 lakh, while that for senior citizens is Rs 2.5 lakh. However, on a disappointing note, the Direct Tax Code will not be applicable from next financial year as hoped by many but will come into effect only from Apr 1, 2012.