DIRECT TAX

CODE
Presented To : Presented By :
Prof. Kashmir Singh Kanishak Kathuria
MBAII-6442
Introduction :
 The New  Direct Tax Code (DTC) is said
to replace the existing Income Tax Act of
1961 in India.
 It is expected to be enforced from 2012.
 DTC bill was tabled in parliament on
3oth August, 2010.
Features :
 DTC removes most of the categories of
exempted income :
Unit Linked Insurance Plans (ULIPs)
 Equity Mutual Funds
 Term deposits
NSC (National Savings certificates)
 Long term infrastructures bonds stamp duty
and registration fees on purchase of house
property
Cont……
 Tax saving based investment limit remains 100,000 but
another 50,000 has been added just for pure life insurance
(Sum insured is at least 20 times the premium paid) ,
health insurance, mediclaims policies and tuition fees of
children.

 One lakh investment can now only be done in provident

fund, superannuation fund, gratuity fund and new pension
fund.

 Exemption will remain same as 1.5 lakhs per year for

interest on housing loan for self-occupied property. Only
half of Short-term capital gains will be taxed. e.g. if you
gains 50,000, add 25,000 to your taxable income.
Cont……
 Long term capital gains (From equities and equity
mutual funds) are still exempted from income tax.
 As per changes on 15th June, 2010, Tax
exemption at all three stages (EEE) —savings,
accretions and withdrawals—
to 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.
Cont……
 Surcharge and education cess are abolishe.
 For incomes arising of House Property:
Deductions for Rent and Maintenance would
be reduced from 30% to 20% of the Gross
Rent.
 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.
Cont……
 Tax exemption on LTA (leave travel
allowance) is abolished.
 Tax exemption on Education loan to
continue.
 Corporate tax reduced from 34% to 30%
including education cess and surcharge.
 Taxation of Capital gains from property sale :
For sale within one year, gain is to be added
to taxable
Cont……
 salary.For long term gain (after one year of
purchase), instead of flat rate of 20% of gain
after indexation benefit, Now gain after
indexation will be added to taxable income and
taxed at per the tax slab.
 Medical reimbursement : Max limit for medical
reimbursements has been increased to 50,000
per year from current 15,000 limit. Tax on
dividends: Dividends will attract 5% tax.
 Tax on Dividends : Dividend will attract 5% tax.
Income and Wealth Tax Rates :
 Increase in tax exemption on income from Rs
1.6 lakh to Rs 2 lakh, with no separate benefit
for women.
 Income from Rs 2-5 lakh to be taxed at 10
percent; Rs 5-10 lakh at 20 percent and 30
percent.
 Currently, income from Rs 1.6-5 lakh attracts
10 percent tax; from Rs 5-8 lakh, 20 percent
and beyond Rs 8 lakh, 30 percent.
 Tax exemption limit for senior citizens above 65
years to be marginally raised to 2.5 lakh per
annum from Rs 2.4 lakh at present.
Cont……
 Corporate tax to be a flat 30 %. MAT has been
increased from 18 percent to 20 percent of
book profit of a company.
 Dividend Distribution Tax will be at 15 percent.
Exemption limit for imposing Wealth Tax
raised to Rs 1 crore from current Rs 15 lakh.
 Wealth tax to be imposed at the rate of 1
percent, except on non-profit organisations
which are exempt.
Tax Audit Limits :
 Tax Audit Limits raised from existing Rs 15 lakh for
professionals to Rs 25 lakh, and from Rs 60 lakh for
income from business to Rs 1 crore.
 Exemptions :
Exemption of interest up to Rs 1.5 lakh on housing loan
retained.
Deduction to be considered only on the interest component and
not the principal amount.
EEE (exempt-exempt-exempt) mode of taxation for insurance
and pension funds also maintained. Exemption on pension,
Provident Fund and Gratuity Funds to be at Rs 1 lakh, while Rs
50,000 exemption provided on pure insurance, including health
cover, and tuition fee payment.

LTA Tax incentives on leave travel allowance to be scrapped.

Investor’s Benefit
 For Investors Existing provision of zero tax on
long term capital gains to continue.
 Short-term capital gains tax for annual income
up to Rs 10 lakh rationalized to benefit
investors in the lower income bracket.
 Small investors with incomes between Rs 2
lakh and and 5 lakh to pay only 5 percent
capital gains tax
Cont……
 less than one-third of the current 17 percent
(15 percent + cess).
 Investors in income bracket of Rs 5 lakh and
10 lakh will pay 10 percent capital gains tax.
 Big investors having income over Rs 10 lakh
to pay short-term capital gains tax at 15
percent.
 Investment in equity-linked Mutual Fund
schemes and ULIPs to attract 5 percent tax on
the dividend paid by these entities.
Cont……
 At present, there is no DDT applicable to
equity fund schemes or insurers on
income distribution to unit or policy
holders.
Cont……
 women would no longer be given a special
status by the government for a higher
exemption.
 Middle Class will continue to find purchasing a
house a lucrative option, as exemptions on
interests on home loans will continue.
 exemptions have been increased for
investment in approved funds and insurance
schemes to Rs 1.5 lakh in a year from Rs 1.2
lakh currently.
Cont……
 While corporates will get slight reprieve via
reduction in Corporate Tax from current 33.22
percent (for incomes more than Rs 1 crore)
 Special Economic Zones (SEZs), which are
notified on or before March 31, 2012, will get
income tax benefits.
Reasons For DTC
 To modernize and upgrade its direct tax laws
i.e. the Income Tax Act and the Wealth Tax
and bring them more in line with current times.
 To give moderate relief to tax payers.
 To reduce unnecessary exemptions.
 to address new realities like operations of
foreign companies in Indian markets, foreign
institutional investors.
Cont……
 For example, capital gains tax would be imposed
on acquisitions made overseas if the acquired
company holds over 50 percent assets in Indian
company. This would affect companies like
Vodafone Group for its acquisition of a 67 percent
stake in Hutchison Essar from Hong Kong`s
Hutchison Telecommunications International Ltd.
 The government has also clarified that foreign
companies, which were regarded as ‘resident of
India’ if their control and management were wholly
situated in India, will now be considered ‘resident’
if the “place of effective management” is in India.
Unanswered Questions
 interest paid on education loan would be
exempt from income tax.
 The DTC doesn't talk about deduction of up to
Rs. 20,000 under section 80CCF available on
investment in infrastructure bonds.
 Bank fixed deposits (FDs) of 5 years duration
enjoy deduction under section 80C.
 The DTC doesn't talk about the limits up to
which retirement benefits like gratuity, leave
salary, etc. will be exempt from income tax.
Cont……
 The DTC doesn't talk about the treatment of
perquisites (perks) like company car,
employer provided housing accommodation,
etc.
 The DTC is not clear about continuing
exemption to investments in Senior Citizens
Savings Scheme (SCSS), National Savings
Certificate (NSC), Equity Linked Savings
Scheme (ELSS) MFs, life insurance premiums
other than term insurance, etc.