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Salient Features and Highlights of the diluted DTC

Salient Features and Highlights of the diluted DTC are as follows

  • DTC removes most of the categories of exempted income. Unit Linked Plans (ULIPs), Equity Linked Mutual Funds (ELSS), Term deposits, NSCs (National Savings certificates), Long term infrastructures bonds, house loan principal repayment, stamp duty and registration fees on purchase of house property will lose tax benefits.
  • Tax saving based investment limit remains 1 lakh but another 50,000 has been added for pure life insurance (Sum insured is at least 20 times the premium paid), health insurance, mediclaim policies and tuition fees of children.
  • But the one lakh investment can only be done in provident fund, superannuation fund, gratuity fund and new pension fund.
  • Exemption will remain the same at 1.5 lakh per year for interest on housing loan for self-occupied property.
  • Only half of Short – term capital gains will be taxed, e.g. if one gains 50,000, only 25,000 will be taxed.
  • Long term capital gains (From equities and equity mutual funds, on which STT has been paid) are still exempted from income tax.
  • Tax exemption at all three stages (EEE) – savings, accretions and withdrawals – to be allowed for provident funds (GPF, EPF, and PPF), NPS (new pension scheme administered by PFRDA), Retirement benefits (gratuity, leave encashment ,etc), pure life insurance products & annuity schemes. Earlier DTC wanted to tax withdrawals.
  • Surcharge and education cess are to be abolished.
  • Tax exemption on LTA (Leave travel allowance) is abolished.
  • Tax exemption on Education loan to continue.
  • Corporate tax reduced from 34% to 30% including education cess and surcharge.
  • For taxation of Capital gains from property sale within one year, gain is to be added to taxable salary.
  • For long term gain (after one year of purchase), instead of flat rate of 20% of gain after indexation benefit, new concept has been introduced. Now gain after indexation will be added to taxable income and taxed as per the tax slab. Base date for cost of acquisition has been changed to 1st April, 2000 instead of earlier 1st April, 1981.
  • Maximum limit for medical reimbursements has been increased to Rs. -50,000 per year from current Rs. 15,000 limit.              Salient Features and Highlights of the diluted DTC
  • Dividends will attract 5% tax.
  • As per the current laws, a NRI is liable to pay tax on global income if he is in India for a period of more than 182 days in a financial year. But in the new bill, this duration has been changed to just 60 days.
  • It consolidates and integrates all direct tax laws and replaces both the Income Tax Act 1961 and the Wealth Tax Act 1957 with a single legislation.            Salient Features and Highlights of the diluted DTC
  • It simplifies the language of the legislation. The use of direct, active speech, expressing only a single point through one sub – section and rearranging the provisions into a rational structure will assist a lay person to understand the provisions of the DTC.
  • It indicates stability in direct tax rates. Currently, the rates of tax for a particular year are stipulated in the Finance Act for that relevant year.
  • Therefore, even if there is no change proposed in the rates of tax, the Finance Bill has still to be passed indicating the same rates of tax.
  • Under the Code, all rates of taxes are proposed to be prescribed in Schedules to the Code, thereby obviating the need for an annual finance bill, if no change in the tax rate is proposed.
  • It strengthens taxation provisions for international transaction. In the context of a globalized economy, it has become necessary to provide a stable framework for taxation of international transactions and global capital.
  • General Anti Avoidance Rule to curb Aggressive Tax Planning – Direct tax rates have been moderated over the last decade and are in line with international norms.
  • A general anti-avoidance rule assists the tax administration in deterring aggressive tax avoidance in a globalized economy.        Salient Features and Highlights of the diluted DTC
  • Such general anti- avoidance rules already form a part of the tax legislation in a number of G- 20 countries. These will also apply to investments under DTAAs.

A review of the DTC has been undertaken to study the feasibility of incorporating amendments recommended by the Parliamentary Standing Committee.

 

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