Direct Taxes Code

Direct Taxes Code

The Direct Taxes Code (DTC) is said to replace the existing Indian Income Tax Act, 1961.[1] If approved, the DTC shall come into force on the April 1, 2012, and shall be applicable for income earned during the financial year 2012-13.[2] Although below expectations, experts see proposals as largely positive.[3]


Highlights of the Direct Taxes Code bill[4]

  • Common threshold income tax exemption limit for men and women proposed at Rs. 2 lakh per annum, up from Rs. 1.8 lakh
  • 10 per cent tax on annual income between Rs. 2-5 lakh, 20 per cent on between Rs. 5-10 lakh, 30 per cent for above Rs. 10 lakh
  • Tax burden at highest level will come down by Rs. 41,040 annually
  • Proposal to raise tax exemption for senior citizens to Rs. 2.5 lakh from Rs. 2.4 lakh currently.(NOTE:-union budget 2011-12 already has proposed it.)
  • Corporate tax to remain at 30 per cent but without surcharge and cess
  • MAT to be 20 per cent of book profit, up from 18.5 per cent
  • Proposal to levy dividend distribution tax at 15 per cent
  • Exemption for investment in approved funds and insurance schemes proposed at Rs. 1.5 lakh annually, against Rs. 1.2 lakh currently
  • Proposed bill has 319 sections and 22 schedules against 298 sections and 14 schedules in existing IT Act
  • Once enacted, DTC will replace archaic Income Tax Act.

Salient features

  • DTC removes most of the categories of exempted income. Equity Mutual Funds (ELSS), Term deposits, NSC (National Savings certificates), Unit Linked Insurance Plans (ULIPs), Long term infrastructures bonds, house loan principal repayment, stamp duty and registration fees on purchase of house property will lose tax benefits.
  • Only half of Short-term capital gains will be taxed
  • Surcharge and education cess are abolished.
  • For incomes arising of House Property: Deductions for Rent and Maintenance would be reduced from 30% to 20% of the Gross Rent. Also all interest paid on house loan for a rented house is deductible from rent.
  • Tax exemption on Education loan to continue.
  • Tax exemption on LTA (leave travel allowance) is abolished.
  • Taxation of Capital gains from property sale : For sale within one year, gain is to be added to taxable salary.
  • Tax on dividends: Dividends will attract 5% tax.
  • Medical reimbursement : Max limit for medical reimbursements has been increased to 50,000 per year from current 15,000 limit.

See also

Reference list

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