Jaipur National University (Seed ling School of law and Governance)

Subject: - Law of Taxation Project Topic: - Direcht Tax Code, 2012

Submitted to: - R.S.Solanki Submitted by: - Sandeep Sharma VIIth Sem

Direct Tax Code The simplified Direct Taxes Code Bill introduced in Parliament on Monday 30 Aug 2010 (PDF) which will become effective from April 1, 2012, holds a few surprises, including withdrawal of tax deduction on the principal component of housing loans. Direct Tax code is a draft bill to change Income tax act 1961 it is originally proposed to be applicable from 01.04.2012 but it is unlikely to happen so and may be it will come in effective on 01.04.2013 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%. Incentives have been withdrawn for women taxpayers by clubbing them with men, with income up to Rs 2 lakh exempt.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. New Tax Exemptions under DTC :2012 As per the proposal, the new tax slab would be 0% : Less than 1.6 lacs 10% : 1.6 10 Lacs 20% : 10 25 Lacs 30% : 25+ Lacs As per this new DTC tax exemptions, almost 90% of tax payers will then pay 10% tax because majority of the income earned will be below 10 lacs (thats very obvious). We will a comparison at the endLTA will be taxed every year . Benefits to Individual Taxpayers: 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. Under Sec 80C deduction of up to 3 lakh allowed 1. 1 lakh on Pension, PF and Gratuity funds 2. 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 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. Mutual Funds/ULIP: Income from equity-oriented mutual funds or ULIP shall be subject to tax @ 5% Income of equity-linked MFs to attract 5% tax Other Major Changes which can affect a Common person:1. Tax Exemptions upto 3 Lacs 2. Proposes tax on Maturity amount from Insurance Policies, PPF, EPF and GPF 3. Interest you pay for housing loans cannot be exempted and your tax burden increases. 4. Recommends Long term capital gains tax to be reintroduced and Short Term Capital gain tax to be added in Income 5. Suggested abolishing the Securities Transaction Tax (STT) 6. Perks now will be included as a part of the income for purpose of tax calculation, so tax burden may be sightly more. 7. Lowering Corporate tax to 25% from 30% The earlier DTC draft had proposed to reduce the corporate tax to 25 per cent from the present 30 per cent. 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. So overall, the DTC, gives benefits to the tax payers, specially to the middle income group. How much would they will be satisfied I don't know but they will be happy for sure as they will see some extra money on their paycheck from April 2011

Direct Tax Code Bill was first introduced in Lok Sabha on August 30,2010 by Finance Minister Mr. Pranab Mukherjee. It was a freshly written white paper turned bill that aimed at introducing strong changes to the tax structure, capping all the loopholes possible and bring strong applicability of compliance in India When Direct Tax Code (DTC) will be applicable

DTC bill has had its share of criticism post its proposal which has eventually been the reason for delay in applicability of it. Direct Tax Code was first meant to be applicable from 1st April 2011 is now proposed to be applicable from 1st April 2012. The Direct Taxes Code Bill which was introduced in Parliament last year, proposes to replace the 50year old Income Tax Act. Our Finance Minister Mr. Pranab Mukherjee has given several statements in the current year assuring of DTC going on roll from the beginning of the Financial year 2012-13

Before finalizing, the draft was put to several invited memoranda containing views/suggestions from various Individuals/Experts/lnstitutions/Organisations interested in the bill. The Memoranda that was submitted to the Committee would form part of the records of the Committee and would be treated as confidential and would enjoy privileges of the Committee. Because of the changes that are proposed to be brought with DTC coming into operations, Individuals, companies, HUF/AOP/BOI are set to get certain tax benefits and also some tax norms will get stringent.

Changes in Direct Tax Code 2012 for Individual Tax slabs will see a change when DTC gets applicable and individuals will get more respite from taxes. To sight an example: Proposed Individual exemption limit under DTC will be Rs. 2,00,000 where as in Current scenario for P.Y. 2011-12 it is at Rs 1,80,000 which means that you will not have to pay tax on further income of Rs. 20,000 and which in turn means tax saving of Rs. 2,000. Tax saving at current and proposed rate of taxability on the difference of Rs 2,00,000 and Rs 1,80,000 @10% will amount to Rs. 2000. Changes in Direct Tax Code 2012 for Corporates

The rate of tax for corporate taxpayers shall be 30 percent (inclusive of surcharge Carry forward of losses shall be allowed without any time limit. Due date of filing the tax return shall be 31 August following the financial year, The rate of CDT will be 15%.

and cess)

replacing 30thSeptember.

Likely retention of EET (Exempt Exempt Tax) Another important thing and bad news for individuals is the finance ministry is likely to retain the EET (exempt-exempt-tax) principle proposed in the Direct Tax Code 2012 on the lump sum amount a salaried taxpayer will receive from his investment in savings schemes such as the Public Provident Fund and other superannuation funds. This means while the contribution and accumulation are tax-free, withdrawal will be taxed at the marginal rate of income tax. By the look of things and policy if implemented Depending on the quantum withdrawn, almost one third of the savings could be eaten away. With structural changes to the Direct Tax Code, DTC bill in its final stages, it looks in all certainty that the DTC bill should be out in budget 2012 and active or applicable from 1st April 2012 but as they say, theres nothing certain in Indian politics

Direct Tax Code (DTC) will be effective from April 1, 2012 onwards and will bring several changes as regards how you invest across various asset classes. So you as an individual need to rejig your investments accordingly. The original draft of DTC was much different from what it is in current form. Having said that you still need to make you investments DTC Compliant. Heres some more in depth analysis: How insurance gets impacted: DTC will have significant impact on insurance. Under DTC, to be eligible for tax deduction, a policy should give life cover of at least 20 times the annual premium. If this condition is not met, you will not get any tax deduction on the premium and even the income from the policy will be taxable. Right now income received from insurance policies is free. So make sure if you are looking for tax deduction on insurance plan, make sure you buy a policy which offers a bigger cover. This is possible only if term plan is for duration of 20-25 years. Bigger the cover, better for the policy holder. Another not so good news is that tax deduction limit for life insurance will get reduced from present Rs 1 lakh a year to Rs 50,000 an year. This annual limit of 50,000 will include the amount paid for tuition fees of children as well as medical insurance for self and parents. So an insurance policy with a large premium, around 80,000 1 lakh will fetch maximum tax deduction of only Rs 50,000. The DTC will also nudge policyholders to take long term view on investments. Premature withdrawals from ULIPs will be taxed, so think twice before deciding on an insurance policy. Agent telling you that surrender charges have been waived off and you can withdraw money after 5 years without paying anything wont hold true anymore. How equities investment will be effected: Exemption on long term capital gains continuing is definitely positive news here. Investors can continue with their investments as planned without any need to rejig them due to DTC.

However ELSS Mutual Fund schemes tax exemption will go and they will be treated at par with other schemes in market with no tax exemption. Investors who are looking for Mutual Funds for tax exemption should consider this factor while investing. Definite impact on Pension Funds: Under the DTC, most of current tax saving investment will not be eligible for deduction. Instead focus has shifted to long term options with pension funds leading the way. An annuity is an investment that gives out a regular income to the investor. Pension plans require an investor to put at least 65% of corpus received on maturity in an annuity which then gives him monthly pension. Though more details are awaited but DTC ahs proposed to make annuity income exempt from taxation which makes them good tax saving instrument. The New Pension scheme is low cost pension fund which an investor can consider. DTC impact on Real Estate: The repayment of principal of your home loan will not be eligible for tax deduction under the DTC. But there is also a bright spot wherein there is removal of tax on notational rent. Right now people who own more than one house have to pay tax on notational rental income even if second house is lying vacant. The DTC will remove this anomaly and make investment in second home more tax efficient. Another landlord friendly move is that advanced tax received from a tenant will be taxed in year it relates, not when it was received. DTC, more importantly has retained tax benefit on the interest paid on home loan. The tax benefits reduce the effective cost of home loan thus making it affordable for borrowers. DTC impact on debt schemes: Most significant point here is that earlier proposal of taxing withdrawals from PPF is junked. Another significant change that will impact investments in debt funds is the new rule for calculating the indexation of capital gains. Indexation takes into account inflation during the holding period and allows investor to adjust his buying price. The DTC has changed this and the asset will have to be held for more than 1 year from the end of financial year in which it was bought to avail indexation benefits. This is a significant change and will impact the way investors in FMPs and debt funds use this benefit In nutshell, lets review the changes proposed on different investment instruments: Investment Whats Changed Your strategy

Instrument Public Provident Fund (PPF) Continue your investment in this Nothing at all. Earlier plans to tax withdrawals tax- free financial instrument as withdrawn part of your debt portfolio. National Pension Scheme (NPS) will get a look in. Invest in this low-cost product and secure your life after retirement. Choose your fund manager carefully after proper research. You need to save more to shelve out EMIs

Pension Plans

Annuity income to be exempt from tax Deduction for interest to continue but not for principal. No more tax on notational rent

Real Estate Fixed Deposits , Bonds Equities and Equity Oriented Funds

Nothing .Interest to be taxed at normal rates.

Keep investing as part of debt portfolio.

Continue investing as per your asset allocation. Use SIP for No change for long term gains. Short term gains compounding. Exemption on to be taxed at lower rate. ELSS will go. Deduction lowered to 50,000 per year. Life cover of 20 times the annual premium must for Buy term plans for life tax deduction, exemption. insurance. Go for arbitrage funds that are treated as equity funds. Buy before financial year ends to gain from indexation.

Life Insurance Debt Funds and Other Non Equity Schemes

Long term gains to be taxed as income

Direct Taxes Code From Wikipedia, the free encyclopedia The Direct Taxes Code (DTC) is said to replace the existing Indian Income Tax Act, 1961.[1][2][3] Contents [hide]

1 Highlights of the Direct Taxes Code bill 2 Salient features 3 See also 4 Reference list

[edit]Highlights of the Direct Taxes Code bill Common threshold Income Tax exemption limit for men and women proposed at Rs. 2 lakh per annum (proposed), up from Rs. 1.8 lakh

10 per cent tax on annual income between Rs. 2-5 lakh, 20 per cent on between Rs. 5-10 lakh, 30 per cent for above Rs. 10 lakh

Tax burden at highest level will come down by Rs. 41,040 annually

Proposal to raise tax exemption for senior citizens to Rs. 2.5 lakh from Rs. 2.4 lakh currently.(NOTE:- Union budget 2011-12 already has proposed it.)

Corporate Tax to remain at 30 per cent but without surcharge and cess. MAT to be 20 per cent of book profit, up from 18.5 per cent. Proposal to levy dividend distribution tax at 15 per cent.

Exemption for investment in approved funds and insurance schemes proposed at Rs. 1.5 lakh annually, against Rs. 1.2 lakh currently Proposed bill has 319 sections and 22 schedules against 298 sections and 14 schedules in existing IT Act.

Once enacted, DTC will replace archaic Income Tax Act. However, many provisions in Income Tax Act will be a part of DTC as well.

Mutual Funds/ULIP dropped from 80C deductions : Income from equity-oriented mutual funds or ULIP shall be subject to tax @ 5%

Fringe benefits tax will be charged to the employee rather than the employer.[4]

[edit]Salient features DTC removes most of the categories of exempted income. Equity Mutual Funds (ELSS), Term deposits, NSC (National Savings certificates), Unit Linked Insurance Plans (ULIPs), Long term infrastructures bonds, house loan principal repayment, stamp duty and registration fees on purchase of house property will lose tax benefits.

Only half of Short-term capital gains will be taxed Surcharge and education cess are abolished.

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.

Tax exemption on Education loan to continue. Tax exemption on LTA (leave travel allowance) is abolished.

Taxation of 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%

Tax on dividends: Dividends will attract 5% tax. Under Sec 80C deduction of up to 3 lakh allowed

a) INR Rs.1 lakh on Pension, PF and Gratuity funds, b) Up to 50,000 for expenditure on tuition fees, pure life insurance premium and health cover c) Up to 1.5 lakh for interest paid on housing loan. No deduction on principal

Medical reimbursement : Max limit for medical reimbursements has been increased to rupees 50,000 per year from current rupees 15,000 limit.