Monday, 12 March 2012

Highlights of Direct Tax Code-2012 : DTC Updates

renjith krishnan
In a country like ours, where population is more than 100 crore, implementing any change or policy is always a challenging thing. Implementation difficulties cannot be avoided.  There is always going to be some resistance from people to accept the change.
Simple Rule Like, “Mandatory to wear helmet on two-wheeler”. Though this rule is for the benefit and safety of our own people, implementing is not an easy task. Only enforcement and Strict penalties will ensure that people abide by the rules.
Direct Tax Code (DTC) is also facing lots of implementation difficulties. DTC aims to make the tax rules lot simpler by eliminating the tax exempted benefits. If DTC is implemented, it will swap with Age old IT ACT of 1961.

After Lots of Twists and Turns, Proposals and Re-proposals, here is how the newly proposed structure looks- (Recommended by Standing Committee).

Tax Slab
Current Tax Slab
Existing DTC
   New Proposal-DTC
upto 1.8 Lakh
upto 2.0 Lakh
upto 3.0 Lakh
1.8  to 5.0 Lakh
2.0 - 5.0 Lakh
3.0 to 10 Lakh
5.0 to 8.0 Lakh
5.0 - 10 Lakh
10.0 to 20 Lakh
> 8.0 Lakh
>10.0 Lakh
>20 Lakh

In the First Look, every salaried employee will love to embrace DTC. Remember the saying “All that Glitters is not gold”. The first look, looks very attractive. Direct Tax code will significantly reduce tax burden by making the tax bracket more tax friendly. Wait a minute!!! Don’t be in hurry to bust your celebration balloon.

Nothing comes free: What you gain from DTC is - Tax Friendly Brackets. What you lose is - Tax exempted benefits/perks will no more be available to you. To make it more clear DTC will close all the means through which tax could have been avoided. Tax exempted allowances like HRA, LTA, Conveyance allowance; Medical, Food Coupons, Car Allowance, etc will be taken away.
The biggest blow of DTC would be the decision to tax the Retirement benefits. Yes you heard it right, there is possibility of returns of PF or PPF or any other investment would be taxable.
To summarize, we are out of EEE-Exempt Exempt Exempt Era. DTC will bring in EET- Exempt Exempt Tax. EET will not be encouraging for retired people. DTC is still in discussion phase and let us hope government comes up with better options for senior citizen or Retired. Retirement benefits will be the main source for people once they retire.
EET in layman’s Term- Investing Today to save taxes, Paying Tax when your investment mature.
Let us look at over all highlights of newly Proposed DTC:
  • Increase in exemption Limit – from 2 Lakh to 3 Lakh.
  • More Tax friendly Tax slabs – 10% for income between 3.0 to 10 Lakh. 20% for 10 to 20 Lakh. Income above 20 Lakh will be 30%.
  • Security Transaction tax may be abolished and Capital gain tax to be introduced instead. This is applicable for stocks, Mutual Funds
  • Loan Availed for renovation/repair of home qualifies for deduction upto 1.5 Lakh. Currently the limit is 30,000.
  •  Raised limit for long term investment (PPF, superannuation, PPF) from 1 Lakh to 1.5 Lakh.
  • Raised limit for insurance(life and health) & Tuition fees from 50,000 to 1 Lakh.
  • Proposed to introduce deduction of upto 20,000 on Medical insurance for senior citizen.
  • Proposed to introduce deduction of upto 50,000 for Higher education.

Observations: Over all it appears that everybody is getting a piece of cake. For now DTC is still a puzzle, only time will tell how many of us will get cream and cherry. Let us keep our fingers crossed and hope that DTC gets out of the decision making phase.
Note: The aim of this article is just provide a brief over view of DTC. Topics like wealth Tax, corporate Tax have not been covered. 
Would you welcome the proposed DTC?


Post a Comment

Visit to discover Indian blogs
Design by Wordpress Theme | Bloggerized by Free Blogger Templates | coupon codes