Interest payment on home loans could become fully taxable
The draft Direct Taxes Code released by the government today proposes sweeping changes in terms of increase in tax slabs and wealth tax, but it has also done away with some exemptions.
For instance, the slabs of all categories have been changed significantly. At present, an individual pays nothing on taxable income up to Rs 1.6 lakh; 10 per cent from Rs 1.61 to Rs 3 lakh; 20 per cent for above Rs 3 lakh to Rs 5 lakh and 30 per cent for above Rs 5 lakh.
The new numbers would look like this. No tax up to Rs 1.6 lakh; 10 per cent for income between Rs 1.6 lakh and Rs 10 lakh; for income over Rs 10 lakh and Rs 25 lakh, Rs 84,000 plus 20 per cent for amount exceeding Rs 25 lakh, and for incomes above Rs 25 lakh, Rs 3.84 lakh plus 30 per cent on income exceeding Rs 25 lakh.
In other words, on a taxable income of Rs 10 lakh, an individual now pays Rs 2.12 lakh as annual income tax. Under the new rate, the amount would be almost one-third, at Rs 84,000.
Also, the wealth tax limit has been hiked to Rs 50 crore. Over that limit, the tax is a mere 0.25 per cent. And the Section 80C limit could also go up to Rs 3 lakh.
Then, there are proposals to remove the clutter. For one, the distinction between short- and long-term investment asset could go. However, if the asset is transferred after one year, there would be deduction based on cost inflation index.
This would basically mean that the long-term capital gains tax, which is applicable for debt funds after one year and housing after three years, will now be standardised at one year. So, if one sells a house after a year, he will get the benefit of cost inflation index available to him — something available to him only after three years.
And if the individual sells the asset, whether property or shares, the capital gains will be included as a part of their income and taxed accordingly.
To make life simpler for the taxpayer, the terms ‘previous year’ and ‘assessment year’ will be replaced by a unified concept of ‘financial year’.
However, while the tax slabs have been hiked substantially, there are some cuts on deductions as well.
For one, interest payment on home loans could become fully taxable. At present, home borrowers get tax deduction up to a limit of Rs 1.5 lakh on interest payments. This could become zero for the self-occupied because the gross rent is assumed to be nil.
| PROPOSED SLABS | ||
| Income (Rs) |
Existing |
Proposed Tax |
| MALE | ||
| Up to 1,60,000 | Nil | Nil |
| 1,60,001 -3,00,000 | 10 | 10% of the amount by which the total income exceeds Rs 1,60,000 |
| 3,00,001-5,00,000 | 20 | 10% of the amount by which the total income exceeds Rs 1,60,000 |
| 5,00,001-10,00,000 | 30 | 10% of the amount by which the total income exceeds Rs 1,60,000 |
| 10,00,001-25,00,000 | 30 | Rs 84,000 plus 20% of the amount by which the total income exceeds Rs 10,00,000 |
| Above 25,00,000 | 30 | Rs 3,84,000 plus 30% of the amount by which the total income exceeds Rs 25,00,000 |
| FEMALE | ||
| Up to 1,90,000 | Nil | Nil |
| 1,90,001 - 3,00,000 | 10 | 10% of the amount by which the total income exceeds Rs 1,90,000 |
| 3,00,001-5,00,000 | 20 | 10% of the amount by which the total income exceeds Rs 1,90,000 |
| 5,00,001-10,00,000 | 30 | 10% of the amount by which the total income exceeds Rs 1,90,000 |
| 10,00,001-25,00,000 | 30 | Rs 81,000 plus 20% of the amount by which the total income exceeds Rs 10,00,000 |
| Above 25,00,000 | 30 | Rs 381,000 plus 30% of the amount by which the total income exceeds Rs 25,00,000 |
| SENIOR CITIZEN | ||
| Up to 2,40,000 | Nil | Nil |
| 2,40,001 - 3,00,000 | 10 | 10% of the amount by which the total income exceeds Rs 2,40,000 |
| 3,00,001-5,00,000 | 20 | 10% of the amount by which the total income exceeds Rs 2,40,000 |
| 5,00,001-10,00,000 | 30 | 10% of the amount by which the total income exceeds Rs 2,40,000 |
| 10,00,001-25,00,000 | 30 | Rs 76,000 plus 20% of the amount by which the total income exceeds Rs 10,00,000 |
| Above 25,00,000 | 30 | Rs 3,76,000 plus 30% of the amount by which the total income exceeds Rs 25,00,000 |
On the other hand, if the person rents out his place or owns a second home, he will get the tax benefit. The calculation will be based on the highest of the actual rent, or 6 per cent of the ratable value (decided by the Municipal authorities), or 6 per cent of the acquisition cost minus deductions, including unlimited interest payouts.
Also, in case of equities, which used to get long-term capital gains benefits (zero taxes) after one year, the capital gains would now be included as a part of the total income.
Besides, the code also proposes the EET (Exempt-Exempt-Tax) principle for withdrawals of accumulated balance in government provident fund, public provident fund and employees’ provident fund. But it will be applicable to only new contributions after the commencement of the new code.
