The Direct Taxes Code (DTC) is said to replace the existing Indian Income Tax Act, 1961.
Highlights of the Direct Taxes Code bill
- Common threshold Income Tax exemption limit for men and women proposed at Rs. 2 lakh per annum (proposed), 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.
- However, many provisions in Income Tax Act will be a part of DTC as well.
- Mutual Funds/ULIP dropped from 80C deductions : Income from equity-oriented mutual funds or ULIP shall be subject to tax @ 5%
- Fringe benefits tax will be charged to the employee rather than the employer.
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 on listed securities held for more than a year will not be taxed. If held for less than a year, it will be taxed at 5%, 10% or 15%
- Tax on dividends: Dividends will attract 5% tax.
- Under Sec 80C deduction of up to 1.5 lakh allowed
a) INR Rs.1 lakh on Pension, PF and Gratuity funds,
b) Up to 50,000 for expenditure on tuition fees, pure life insurance premium and health cover
Medical reimbursement : Max limit for medical reimbursements has been increased to rupees 50,000 per year from current rupees 15,000 limit.