Category: News

Update Aug 30 ,2010 , 5:00 PM   : This post should be now considered as post with old information as after DTC was tabled in Parliament , there were many changes in DTC.

Also DTC Bill has been delayed by 1 yrs and will come into effect from Apr 2012 , Link

Cabinet has finally approved the Direct Tax Code and now it would go to Parliament for approval and as per tax expert, Subhash Lakhotia is would be easily passed by the Parliament. Finally, the Tax system of our country is going to simplify after The new tax code comes into effect from Apr 2011 next year. The bad part is that the tax slabs have been revised and now it’s much lesser than what was proposed earlier (Link)

Change in Tax Slab

New Tax Slab : 10% for 2-5 lacs , 20% for 5-10 lacs and 30% for above 10 lacs

Proposed Tax Slab earlier :  10% on 1.6-10 lacs , 20% for 10-25 lacs and 30% for above 25 lacs.

Some More Features

• Deductions from taxable income will be available for interest on housing loans up to Rs 1.5 lakh per annum
• For women and senior citizens, the exemption limit would be Rs 2.5 lakh per annum
• Up to 1 lacs could be saved for payments into PF and similar superannuation schemes
• Deduction of up to Rs 50,000 for life insurance and health insurance premiums or tuition fees.
• Securities Transaction Tax (STT) and Education cess are out .
• Life Insurance payments and  mutual fund income are liable for 10% TDS  (source)
• HRA is no longer available.

You should note that all these changes are going to happen from Apr 2011 (next year). For this current year, everything is same (you will get same old 80C deductions)

Why Public might get disappointed

The biggest blow is the change in the tax slab, especially investors who earn in range of 5-10 lacs per year, earlier Financial minister promised that the tax would be 10% up to 10 lacs , but now there is 20% tax for 5-10 lacs range, which means that effectively the tax paid would be 2 times of what it would have been earlier. Also even for high earning people who make in the range of 10-25 lacs, earlier it would have been 20 %, but now it would be 30 %, which is good enough disappointment:).

Here is a nice video that would give you a good insight into what to expect from the Direct Tax Code.

Comment on how you feel about the tax slab ? Are you happy about it or disappointed? I think it would be a big disappointment for a lot of people, at least personally I am disappointed by that 🙂 .

The Government has come out with new revised Direct Tax Code (pdf) and there are many changes which might look good to investors finally. Most of the people were not happy with the old tax code as it made some products taxable like PPF , Endowment Plans etc, which investors were totally worried about. Now Govt has made some changes earlier which looked extreme to investors and they were not happy about it, however still there are some things which will pinch investors. Old Direct Code tax was challenged and the govt reconsidered the Old Direct Tax Code and has finally come up with this new revised set of rules which I will list down here.

Pure Life Insurance Products/Pension Products/PPF/EPF/NPS

Finally, under New Tax Code:  PPF, EPF, NPS, Pure Insurance products and Pension Products have come under EEE regime, which means that the amount you contribute, & any return or interest generated and the final maturity is exempt from tax. The major change in the revised Direct Tax code is that at the time of maturity of these products, you don’t have to pay tax on the amount you get. In the old Code the maturity was taxable.

Endowment/Moneyback and ULIP’s

These products are under EET regime, so the money you get at the end will be TAXABLE.  (More)

Real Estate

Existing and prospective real estate buyers have some thing to cheer about. In the Revised Tax code, Interest will still be exempted upto 1.5 lacs, but principal would not be getting any place in sec 80C , which is again not a big problem as generally 80C gets filled up with EPF, Insurance, children’s tuition and other products for most people.  (Returns from Real Estate)

Another big change which is there is that now on a rented flat, the gross rent for taxation would be actual rent received. Earlier, if you had not let out your flat and it was vacant, you still had to pay tax on the notional rent (the old draft it was said that it can be upto 6% of the value of the property.) But now, with revised tax code you don’t have to pay any tax if you don’t get any rent from your rented (and second house) house  Would be nice to see your views on controversy of Buying vs Renting

Existing Investments

Incase you have any existing Investments, which enjoyed EEE method of taxation, they would be treated the same way for their full tenure.

Capital Gains on Equity

There are some big changes here. For sure your equity investments in shares and Equity mutual funds are going to be taxed now 🙂 But in a different way. The old tax code suggested that short-term capital gains on Equity should be added to the income and taxed at applicable tax rates and long-term gains (above 1 yrs) should get Indexation benefits and then they should be added to your income for taxation purpose.

However the new revised tax code has changed this and a new concept of “Deductions” is in . As per this rule , for any long-term capital gains, you will get certain specified deductions which will be some percentage of your profits, and then after deducting these, the rest will be added to your income and then taxed at applicable rates. The indexation concept is now gone . The short-term capital gains still gets added to income and then taxed . The short-term capital gains will actually be now beneficial to people who earn 10 lacs of less , as earlier they had to pay 15% tax , but now as they have to pay 10% tax as per the new slab , the tax on short-term capital gain part will be 10% only .There is no enough clarity on the deductions percentage as of now. (Using looses to reduce your tax)

One another major change is the definition of the holding period. As of now, it will be 1 yr from the end of the financial year when you bought your shares which means that if you bought your shares or mutual funds on 5th of Apr 2010 , then the end of that financial year would be 31st Mar 2011 and then 1 yr from that 31st Mar 2011 would be 31st Mar 2012 , so effectively your Holding period can range from 1 yrs to 2 yrs depending on when you buy the shares, so the short-term capital gain would be if you sell it before your holding period and long-term capital gains would be if you sell it after your holding period .

Capital Gains on Gold , Debt Funds , Real Estate

The long-term gains on these assets would now be after 1 yrs 🙂 . Earlier it was 3 yrs. The long-term capital gains would qualify for Indexation as it was applicable earlier and short-term capital gains will directly be added to income and taxed . Earlier the base date for indexation values was taken from 1 Apr 1981, however now the base date shifts to Apr 1, 2000. This will now reflect the inflationary changes in these asset classes in a better way.

What happens to the properties very old like 30-40 yrs ? Some thing new has come up !! , your original indexed cost price wont be considered , but the price on Apr 1 , 2000 would be Applicable, as per my understanding .

Interesting : So what about those who have invested in Equity after Mar 31 , 2010 ? If they sell it before 31st Mar 2011 , they will pay short term capital gains of as high as 30% or 20% (depending on which slab you come in this year) , OR the other option is to hold it and sell it later so that New Direct Code applies to you and you pay just 10% on the profits considering you taxable income is less than 10 lacs . Watch the video below on this issue .

There is just one word which can describe the year 2008-2009 tax structure … GREAT. This article will tell you everything about tax in 2008. Following things will be discussed :

1. Tax Slab in 2008 for salaried employees

2. How much will you save?

The exemption limit for the year 2008 is 1.5 lacs, which means that if your taxable income is upto 1.5 lacs, you don’t pay any tax.

What is Taxable Income?

The pay which you get has many components, like HRA, conveyance allowance and others.

Out of this income, some things are deductible on your hand and after deducting you arrive at an amount called Taxable income, on which you have to pay income tax.

Taxable Income = Your Gross Salary – (HRA) – (Investments under Sec 80 C) – (Conveyance allowance) – (Health insurance Premium, Sec 80D) and some more things which you may claim.

The slab for the year 2008-09 is as follows:

Exemption Limit for Men = 1.5 lacs
The Exemption Limit for Women = 1.8 lacs
Exemption limit for Senior Citizens = 2.25 lacs

3% Education cess also on the tax amount after tax and surcharge (if any)

What is surcharge?

* If salary is above 10 lacs, a 10% surcharge will also be applicable.

Example : Ajay earns Rs 14 lacs

Total Income (14 lac ) – amount under sec 80c (1 lac) – HRA (Rs 70k , for example) – Conveyence allowance (9,600 , 800*12) – health Insurance (10k , max 15k) under sec 80D (its seperate from sec 80C) = 14 lacs – 1,94,800 = 12,05,200

Now lets do tax calculation :

0 – 1.5 : 0
1.5 – 3 : 15,000 (@ 10%)
3 – 5 : 40,000 (@ 20%)
5+ : 2,11,560 (@ 30%)

= 2,66,560 + surcharge (10% of this amount)
= 2,66,560 + 26,656
= 2,93,216

Now education cess will also be applied : @ 3% , so 2,93,216 + 3%
= 2,93,216 + 8796.48
= Rs. 302012.48

This is the total tax payable.

Note: education cess is charged after surcharge is applied and not before.

I would be happy to read your comments or disagreement on any topic. Please leave a comment.