New Direct Tax code-Important highlights- likely to be effective from 1.4.2012


1. Resident/non-resident definition: As per the DTC proposal, an NRI will be deemed as resident only if he has also resided in India for 365 days or more in the preceding four financial years, together with 60 days in any of these fiscal years. Only when the two criteria are met, an individual will be considered resident for taxation purposes.Even if an NRI becomes a resident in any financial year, his global income does not immediately become liable to tax in India. Global income would become taxable only if the person also stayed in India for nine out of 10 precedent years, or 730 days in the preceding seven years.

2. There is no resident but not ordinarily resident status which is abolished.

3. Proposed Tax slabs for F.Y.2012-13 is given below wherein there is no differentiation between male and female assessees:

Annual Income Tax Slab
Up-to INR  2,00,000 (for senior citizens 2,50,000) Nil
Between INR 2,00,000 to 5,00,000 10%
Between INR 5,00,000 to 10,00,000 20%
Above INR 10,00,000 30%

4. Leave Travel assistance will be taxed. Surcharge and educational cess are removed.

5. Under Sec.80C, an amount of Rs. 3 lakhs is allowed which is as follows:

a. upto Rs.1,00,000on Pension, PF and Gratuity funds( superannuation schemes including new pension scheme of Govt).

b. Upto 50,000 for expenditure on tuition fees, pure  insurance premium on life and health cover including parents.

c. Up to 1.5 lakh for interest paid on housing loan.

6. DTC removes the following categories from 80C benefit. a)ULIPs, ELSS, Fixed deposits, NSC, Long term infra structure bonds, Housing loan principal repayment,stamp duty and registration fees on purchase of house property.

7. Under DTC, to be eligible for tax deduction, an insurance policy should give life cover of at least 20 times the annual premium. If this condition is not met, assessee will not get any tax deduction on the premium under 80 C and even the income from the policy will be taxable.

8. The repayment of principal of  home loan will not be eligible for tax deduction under 80C. For repairs for rented accomodation, 20% of gross rent will be allowed instead of 30%. But there is also good thinking wherein there is removal of tax on notational rent. Presently, 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 friendly move is that advanced tax received from a tenant will be taxed in year it relates, not when it was received.

Tax on dividends:  Now dividend distributed by equity mutual funds will attract 5% dividend distribution tax. Dividend received from non-equity mutual funds will be taxable at investor’s hand as per his tax slabs. There will be a TDS of 10% if the dividend is more than Rs.10,000/- per year.

Corporate tax: Corporate tax reduced from 34% to 30%.

MAT(Minimum Alternte Tax): 

A minimum alternate tax (MAT) is the one which is had to be paid by the companies that are enjoying various tax exemptions under different schemes. The Centre had proposed levying MAT on the book profits of the company – at the rate of 2% .However, due to practical difficulties in calculating the MAT for the loss-making companies as per the older version of the proposal, the revised draft code set out by the government says that the MAT should be calculated on the book profits. Thus, the new proposal would ensure that the loss-making companies do not get away from their legitimate taxation liabilities.

For elaborate details , please visit the following sites in which I have given vivid descriptions:

http://www.shvoong.com/business-management/investing/2232664-proposed-direct-tax-code-2012/

http://www.shvoong.com/business-management/investing/2232669-proposed-direct-tax-code-ii/

http://www.shvoong.com/business-management/investing/2232674-proposed-direct-tax-code-iii/

http://www.shvoong.com/business-management/investing/2232677-proposed-direct-tax-code-iv/

My followers also can register their names in Shvoong.com site where I started writing in order to get emails when any new article is written.

Venkata Ramani

(AICWA)

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16 thoughts on “New Direct Tax code-Important highlights- likely to be effective from 1.4.2012

  1. Sir, Kindly advise where I can invest to avail tax benefit as NSc has been removed from the list, for the year 1st apr 12 to 31 mar 13.
    I cannot invest in LICs as I have only five years to retire.
    Please advise
    regards
    shankaran

  2. Can you please guide, as per the Budget Released today, if the deduction allowed under sec. 80C (like NSC etc) can be availed of for the income during FY 2012-13.

    If not, is there any other provision in the today’s Budget where investment made can be considered for tax exemption? e.g. any other area where Investment can be made to avail tax exemption.

    I cannot opt for policy for 20 years as I have only six years to retire. Current LIC covers I have do not meet the criteria of premium x 20, Hence this request.

    shankaran warrier

    1. You can go in for Public providend fund upto Rs.1 lakhs. It is a good investment source where interest earned is tax free. The rate of interest is reasonable around 8.6%. Under 80C, maximum you can invest upto Rs.100000 in which PPF is also one investment mode. If you have any other investment which qualify under 80C like LIC premium, PF etc, then you can invest in PPF in post offfice or bank for the balance amount

  3. govt. policies to balance the budget deficit will be fruitfull not only by the ways of tax planning .Rather the main source of generating employment, allocating finance , taking risk ,creativity , skill building , increasing the standards of living……
    “THE COUNTRY NEEDS ENTREPRENEURS ”
    — INFRASTRUCTURE.
    — ETC…….

  4. Kindly advise if the rebates under sec. 80C (like NSC etc) as were available previously up to Rs.1 lac have been abolished. Kindly also advise if the policy value is less than the annual premium X 20, this annual premium will not be considered? As an alternate where there are three policies or more, if the total value of all the policies put together multiplied by 20 reaches the value as stipulated under this code, whether such cumulation is allowed and it will be considered.

    regards

    1. Rebates under 80C continues for current financial year. New direct tax code is uner formation of govt. Some amendments may com ae. So only after budget, it can be known. So wait till budget. The same case is with LIC policies. But wait till budget. Combination of policies will not be considered for premium x20. Individual policies will be viewed. This is still not enacted and hence wait till budget.

    2. There is no significant changes in income tax for 2012-13 and basic exemption is increased from 1.80 lakhs to 2 lakhs. All others remains intact. please see my latest article in this respect.

  5. Kindly advise the rebates as were available during previous FY 11-12 have been removed for FY 2012013.

    thanks in advance for advice.

    regards

  6. when u say the income from policy is also taxable, would that include the entire maturity amount or only the bonus. Also, will LIC organization deduct the tax at source, or do we have an option to take the entire amount and pay tax as part of my regular tax.

  7. THERE IS NOTHING NEW ABOUT dtc FOR SALARY EARNERS. INSTEAD OF SAVINGS OF rS.1,20,000/- AT PRESENT RESTRICTED TO rS.1 LAKH ONLY. FURTHER THE TAX SLABS HAVE BEEN REVISED FROM THE ORIGINAL dtc WHICH WILL CAUSE HEAVY BURDEN ON FINANACIAL STRAIN IN THESE DAYS HIGH INFLATION. MAY I REQUEST THE FM TO REVISE THE SLABS CONSIDERABLY SAY 2.5 LAKHS TO 5 LAKHS -10% AND ALSO INCREASE THE DEDUCTIONS TO rS.2 LAKHS WITHOUT SEGREATION, LIKE nsc OR INFRASTRUCTURAL BONDS.

  8. MAT under proposed direct tax code:
    The MAT credit can be carried forward upto 15 years and the MAT rate is increased to 20% from 19.93% in the current DTC paper.
    SEZ developers will face tax burden from 1.4.2012.

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