Even your retirement corpus is safe.
The taxpayer’s life could become simpler. The Direct Taxes Code (DTC), which will be tabled in Parliament on Monday, has hiked the basic exemption limit for them. Though the tax rate slabs have been retained, the income levels for which they will be applicable has been reduced considerably.
The first draft of the DTC had been released by the Finance Minister, along with a discussion paper on 12 August., 2009 inviting the public to share their views and suggestions. On 15 June, 2010, a revised discussion paper on the draft DTC was released, which was meant to respond to the major concerns and comments received from various public forums. If approved, the DTC is proposed to be effective from 1 April, 2011.
It is proposed that rates of taxes will be taken in the schedule to the DTC so that they need not be changed every year and thus aim to provide some kind of stability. The DTC aims to increase the tax base, reduce rates for taxpayers and cut down on exemptions.
Accordingly, in the original Draft DTC, the Exempt-Exempt-Tax (EET) method of taxation for various tax saving instruments / investments was proposed to be introduced as against the current Exempt-Exempt-Exempt (EEE) method of taxation. Concerns were raised that the EET method of taxation on savings is generally followed in countries having a social security system which is absent in India and making the change would be harsh for the people that need a lump sum on retirement for family obligations.
Therefore, as per the revised discussion paper, it is proposed to provide the EEE method of taxation for government provident fund, public provident fund, recognised provident fund, the pension scheme administered by the Pension Fund Regulatory and Development Authority, approved pure life insurance products and annuity schemes. Further, investment made before the commencement of the DTC in instruments currently enjoying the EEE method of taxation would continue to be eligible till maturity.
| Tax Rate* | Income slab applicable for the financial year 2010-11 ( that is AY 2011-12) (in Rs) | Income slab Proposed in the DTC (in Rs) |
| Proposed in the original DTC (in Rs.) | ||
| Proposed in the DTC Bill cleared by the Cabinet (in Rs.) | ||
| 0% | Up to 160,000** | Up to 160,000**Up to 200,000*** |
| 10% | From 160,001 to 500,000 | From 160,001 to 10,00,000 |
| From 200,001 to 500,000 | ||
| 20% | From 500,001 to 800,000 | From 10,00,001 to 25,00,000 |
| From 500,001 to 10,00,000 | ||
| 30% | 800,001 and above | 25,00,001 and above |
| 10,00,001 and above | ||
| * Currently for the financial year 2010-11, the tax payable is to be further increased by 3% being education cess. ** For resident women below 65 years and senior citizens (65 years and above), the basic exemption limit is '190,000 and '240,000 respectively. *** For resident women and senior citizens (65 years and above), the basic exemption limit is proposed to be increased to '250,000. | ||
As per the revised discussion paper, capital gains will be considered as income from ordinary sources and will be taxed at the rate applicable to the taxpayer. In case of listed equity shares / units of equity oriented funds held for a period of more than one year from the end of the financial year in which the asset was acquired, the capital gains will be adjusted after allowing a deduction at a specified percentage without any indexation. Loss arising on transfer of such an asset to be scaled down in a similar manner. The rate of deduction is to be finalised in the context of overall tax rates. The adjusted capital gain / loss to be included in the total income and taxed at the applicable rate. Transition provisions from the current scheme under which such assets are taxed at a nil rate is to be provided.
In case of capital gains on all assets held for a period of less than one year from the end of the financial year in which the asset was acquired, capital gain will be computed without any specified deduction or indexation benefit and the capital gains will be included in the total income and will be charged to tax at the rate applicable to the taxpayer.
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Will there be any surprises in the DTC bill when it will be tabled before Parliament on Monday 30 August, 2010? One will have to wait and watch till then.
Homi Mistry is partner and Pallavi Damecha is manager Deloitte, Haskins & Sells