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Direct Tax Code
Direct Tax Code
:- Chandresh
The new Direct taxes code has been published by Finance ministry, which would replace current Income Tax structure from 2011-12.
General Aspects
Earlier Income Tax Act and Wealth tax Act (Covering Income Tax, TDS, DDT, FBT and Wealth taxes) are abolished and single code of Tax, DTC in place. Concept of Assessment year and previous year is abolished. Only the Financial Year terminology exists.
Only status of Non Resident and Resident of India exits. The other status of resident but not ordinarily resident goes away. Earlier the terminology of assessed was meant for the person who is paying tax and/or, who is liable for proceeding under the Act. Now it has been added with 2 more definitions namely a person, whom the amount is refundable, and/or, who voluntarily files tax return irrespective of tax liability.
No changes in the system of Advance Tax, Self Assessment Tax and also TDS. Amendment of TDS goes in line with earlier Notification 31/2009 which speaks of Form 17/UTN/etc. Government assessed is covered in Direct Tax Code. Even though they are not liable for Income Tax / Wealth Tax, Government Assesses are required to comply with provision of TDS and TCS. (Current act was not covered with Government Assesses)
For Female, second slab begins from 1.90 Lakhs and for Senior citizen it begins from 2.40 Lakhs Companies tax rate changed from 30% to 25%.
31/08/2012
Tax incentives:
Earlier terms Deductions under Chapter VI A will be treated as Tax incentives. 80C gets a major hit by introduction of EET methodology (Exempt - Exempt - Tax). The investment is Exempted when invested. The investment is Exempted till it is remained invested. The investment is Taxed when it is withdrawn.
Also, investments are considered only of those invested through savings intermediaries approved by PFRDA (Pension Fund Regulatory and Development Authority)!!
Such savings intermediaries may in turn invest in ELSS mutual funds, government securities, Public sector securities, etc. Such investments are also exempted to the maximum of Rs. 3 Lakhs.
All such savings will be governed directly by government by an appointed depository (an independent agency).
Other than this, Tuition fees for children will be allowed as deductions. No maximum limit for this, as savings are charged once they are withdrawn.
Medical treatment, higher education loan interest, donation and rent paid by selfemployed individual are deductible. New provision comes for Handicapped individuals to get deductions upto 75,000.
No deductions on HRA, Medical reimbursements, etc, etc. Employer part of PF paid will be exempt from tax as Tax Incentives under EET methodology (to employees).
House Property:
No deduction for Housing loan repayment of Self-Occupying property. This includes interest as well as part of principal. Only Let out properties are considered and the Gross rent and specified deductions are taken with simple calculations.
Ordinary Sources:
The 5 categories of Ordinary sources can have multiple sources under each head (Eg: Multiple employer, Multiple Business, Multiple Properties, etc). The income will be computed in 2 step procedure for each head:
Calculate for each source under each head of Income. Aggregate the total under each head and arrive a total profit or loss under such head.
Then aggregate all the 5 heads and arrive the figure of Current Income from Ordinary Sources .
Then this value has to be aggregated with unabsorbed losses as of immediate preceding financial year . Such aggregated income will be treated as Gross Total income from Ordinary Sources .
If such result is negative, then Gross Total Income will be NIL and value will be treated as Unabsorbed current loss from ordinary sources .
Such Gross Total Income will be further reduced by incentives similar to earlier Chapter VI A deductions. The resultant amount will be 'Total income from ordinary sources'.
1000
500
Nil
Nil
Nil
Nil
Nil
(-)500
(-)1000
(-)2500
Special Sources:
This includes incomes like:
Any assessee
On income by way of winnings from
any lottery or crossword puzzle race, including horse race (not being the income from the activity of owning and maintaining race horses) Card game or any other game or gambling or betting.
Non-resident
On investment income by way of Interest, dividends on which distribution tax has not been paid, capital gains, any other investment income On income by way of royalty or fees for technical services
The income on such way will be aggregated Current Income from Ordinary Sources . Then this value has to be aggregated with unabsorbed losses as of immediate preceding financial year . Such aggregated income will be treated as Gross Total income from Special Sources .
If such result is negative, then Gross Total Income will be NIL and value will be treated as Unabsorbed current loss from Special sources .
Such Gross Total Income will be calculated separately and adjusted will losses. Then the resulting values will be aggregated and the resultant amount will be 'Total income from Special sources'.
Total Income:
'Total income from ordinary sources' PLUS 'Total income from Special sources' = Total Income. The losses can be carried forward for any number of financial years, with year on year adjustment system. Loss under Capital Gains and Loss under Speculative business are ring-fenced and can be adjusted only against respective heads.
Surcharge & cess on companies will be removed. It seeks to levy dividend distribution tax at 15 per cent. Income on non-profit organisations, exceeding Rs 100,000, is proposed to be taxed at 15 per cent. HRA exemption restored. Employer s contributions to NPS (not exceeding 10% of salary), to approved superannuation fund (no limit limit of 1,00,000 done away with), to approved PF (not exceeding 12% of salary), interest credited to approved fund not to be included in salary.
Only actual rent from house property to be taxed. Present system of taxing notional value called annual value proposed to be done away with. Rent received in arrears to be included in the year of receipt, whether person in owner of property or not, after allowing 20% deduction towards repairs & maintenance. Consideration received from transfer of carbon credits to be taxed as business income. Remission or cessation of any liability by way of loan/deposit/advance/credit to be taxed as business income.
Scientific Research and Development in house facility expenses weighted deduction proposed to be increased from 150% to 200%. Transfer of land of a sick industrial company made under a scheme sanctioned under section 18 of SICA where such company is being managed by worker s cooperative not to attract capital gains tax. Reverse mortgage under notified scheme to continue to be exempt from capital gains tax. Exemption for long-term capital gains from equity shares/units of equity oriented mutual funds retained. STT to be retained.
Short-term capital gains (where equity shares/units are held for 1 year or less) deduction of 50% to be are allowed and balance 50% taxed. Likewise short-term capital loss to be scaled down by 50%. Deduction for interest on housing loan/loan taken for repair or renovation of house property upto limit of Rs. 1,50,000 in respect of one house pro-perty not let out. No deduction for re-payment of principal under the Code. Limit for tax audits for professionals increased from Rs. 15 lakhs to Rs. 25 lakhs. Limit for tax audit for business increased from Rs. 60 lakhs to Rs. 1 crore.
TDS of 10% on payments in respect of life policies which are not exempt from tax from code. Amount received by employee from NPS trust is tax-free. Thus, NPS which is taxed on EET basis is proposed to be made EEE (Exempt-ExemptExempt) for employees. MAT rate Increased from 15% of book profits to 20%. MAT Credit carry forward period increased from 10 years to 15 years.
DDT on dividend of domestic company 15%. DDT on income distributed by mutual fund/life insurance to unitholder/policy holder 5% Wealth tax threshold increased from Rs. 30,00,000 to Rs. 1 crore. Tax rate will be 1% of net wealth in excess of Rs. 1 crore.
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 won t hold true anymore.