The Finance minister, while announcing the Budget last week said that the Direct Tax Code (DTC) was likely to be passed by Parliament in the next financial year after obtaining the Standing Committee’s report. Let’s study impact of DTC on individuals.
Impact
The impact on the tax liability will be in favour of the tax payers. Let’s look at the DTC and current tax slabs. (See chart)
For senior citizens (60 years — 80 years), there will be no tax on income up to 2,50,000. The next range for senior citizens will be `2,50,000 to Rs 5,00,000 for 10 per cent slab and the remaining slabs will be as shown above.
The government has now defined another slab for very senior citizens, whose age is more than 80 years. For the very senior citizens, the exemption limit is Rs 5,00,000.
There will also be no extra benefits given to women as post DTC, as the benefits will remain the same.
Impact on capital gains
The short-term capital gains on stocks will be charged as per the tax slab individual falls into. However, the taxable amount will be only the 50 per cent of the gain.
The good news is that you have to pay taxes only on half of the short term gain but on the other hand you have to pay as per your tax rate, which could be as high as 30 per cent. The long-term gain is exempt from any tax liability. Also, the short-term capital gain on property will be charged as per your tax slab. Long term capital gains will be indexed and then added to your income and taxed as per the tax slab you fall into.
Impact on deduction
The DTC shall maintain the existing deduction of Rs 1 lakh under Section 80C. However, the new DTC removes most of the tax saving instruments such as ULIP, ELSS funds, term deposits, and NSC. The investors can still invest in ELSS and claim the benefits for this year.
Additionally tax deduction on the principal part of the housing loan under 80C is removed so you cannot claim deduction for the principal (however the deduction for interest on home loan remains).
This, however, is not a great concern because usually Section 80C is filled up by other investments.
The instruments available for tax saving purpose will be new pension system (NPS), provident fund (EPF and PPF), superannuation fund, and any other scheme proposed by the government as per the framework.
Deduction of Rs 50,000
There will be another Rs 50,000 deduction which will be allowed for the following (all deductions for the below items combined should not exceed Rs 50,000):
* Insurance where the sum assured is 20 times the annual premium.
* Health insurance.
* Tuition fee for your children (up to 2 children).
Deduction on medical treatment
A deduction of Rs 40,000 for medical treatment will be allowed for tax deduction (Rs 60,000 for senior citizens) for specific diseases. The deduction will be reduced by the amount paid by the company.
Other changes for salaried class
* LTA will be taxed.
* The medical reimbursement limit will be hiked to Rs 50,000 from Rs 15,000.
* For NRIs, who stay in India for at least 60 days and earn money, will be taxed.
* With the DTC, the last date of filing taxes will be advanced by a month. This means individuals will have to file taxes by June 30.
There are many questions unanswered regarding the clauses in direct tax code and the Centre will provide more clarity as the Bill is tabled before final implementation.
(The writer is the CEO of bankbazaar.com)