The third version of the Direct Taxes Code (DTC)— one which has the recommendations of the Standing Committee — is out. And, going by the overall theme, the common man might just be better off in some ways.
If so, compared to the total deduction limit of Rs 1.40 lakh for long-term saving through tax-saving instruments, you may be able to save a total of Rs 3.2 lakh. Also, there are chances the basic exemption limit is raised to the suggested Rs 3 lakh from the present Rs 1.80 lakh. "Given the current situation, I'll be happy even if the finance ministry chooses either of the recommendations for this Budget. The salaried class will have more in hand," says 36-year old father of two, Indraneel Biswas, from Bhubaneswar.
The committee had a similar reason at the time of filing the recommendations, "In view of the inflationary trends in the economy and the imperative to leave more disposable incomes in the hands of individual tax payers, particularly those in the lower income bracket, the committee would recommend that the tax slab attracting nil rate for income should be raised to Rs 3 lakh." The proposal adds the proposed exemption limit of Rs 1 lakh is inadequate. (Click here for MAKING LIFE LESS TAXING)
DTC's proposal of no exemption to contribution towards life insurance if the sum assured is 20 times the annual premium paid has been revised downwards to 10 times the sum assured. This is a big positive for individuals, as almost all taxpayers pay for premiums, mostly unit-linked plans, where to buy a policy 20 times the sum assured will mean a huge premium payable. Especially, if you had bought the policy before September 2010, say financial planners.
As for the capital gains, DTC had proposed no zero long-term capital gains tax benefit. There isn't much respite provided by the committee's recommendations. In its reply, the department of revenue says, "DTC proposes to treat capital gains as an income from ordinary sources and subject to tax on net basis. The tax is proposed to be levied at the applicable marginal rate. This means, if a person having income in the form of capital gain falls in the bracket of 10 per cent, he will be also liable to pay capital gains tax at 10 per cent. In contrast to this, under the IT Act, capital gains arising on the transfer of a long-term capital asset, other than on listed securities, is taxable at the rate of 20 per cent. Therefore, provisions of the DTC are more equitable." And, the Securities Transaction Tax is sought to be abolished.
The industry is split on changes in the wealth tax exemption. The proposal note says given the real estate prices and inflationary environment, if one wants to own a decent house in metro cities, he is mostly likely to be quoted Rs 1 crore and he has no option. Therefore, a section of tax consultants agree to raising wealth tax to Rs 5 crore. "However, if I can take a loan of Rs 80-90 lakh, I have that kind of financial strength. And, this recommendation helps me escape the tax net," said a senior tax consultant.
More From This Section
DTC has proposed including premium payment by an employer for employee's health insurance covering his family members as a perquisite. But, the Committee has asked that to be excluded, along with taxing Esops at the time of sale and not vesting (minimum holding period). Mayur Shah, tax director at Ernst & Young, says," DTC had proposed to tax Esops at the time of the exercise like in the current regime."
According to Sundeep Agarwal, associate director (tax), Pricewaterhouse Coopers, "Restoring the 182 days clause for maintaining NRI status will be a big positive, as most NRIs visit India for over 60 days (as proposed in DTC) and would have become residents getting taxed heavily on their global income."