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Commentary

Direct Tax Code Bill Kinda-Sorta Happens

The Union Cabinet has cleared the Direct Tax Code bill, which means nothing other than it will actually be cleared by December if it’s tabled on Monday, and that means sometime in the next decade it might actually happen.

The DTC simplifies tax slabs. Upto 2 lakhs, nothing, it seems. 2 to 5 lakhs, 10%, 5 to 10L, 20% and above 10L, 30%. Nothing earth shattering – the current limits are 1.6, 5 and 8 Lakhs.

Corporate tax goes to 30%. From 33%. That’s nice. MAT for those fellows not paying tax is 20% of book profits.

PF is exempt from tax, or so they say, but the rest get taxed EET. Dividend distribution tax stays the same. Life Insurance payments and  mutual fund income gets a 10% TDS. (10% of what? We don’t know).

I don’t know if STT is out. I don’t know what happens to various random exemptions. I don’t know I can’t really say until I see the full bill – everyone’s taking data from an interview of the Finance Minister, where it’s likely there weren’t enough questions asked or answered. Anyone have a copy?

  • Anonymous says:

    >Dear Deepak,
    I am confused. Times of India states total deduction possible as 100,000 (EEE) + 20,000 Infra Bonds.

    But Economic Times states Max Investment Rebate at 150,000 (Tax free investment of 100,000 + 50,000 for Tution Fees, Pure Life Insurance and Health Insurance.

    Housing exemption stays at 150,000 on interest payment. Does it mean that this will in addition to the 150,000 rebate mentioned above or it is within that limit?

    Could you please clarify?

    MK

  • Anonymous says:

    >What happens to Long Term capital gains? I hear they will remain nill. True/false?

  • Anonymous says:

    >for a salaried class in the higher end, this does not change much. LTCG Tax on Equity only can make significant inroads in your gains .

    And I did not hear anything about that ….
    Samarth

  • Anonymous says:

    >Finally I could decode something. But details can only be known next week after FM presents details to Parliamentary Committee.

    1. EEE will exclude ELSS, ULIPs or even MF pension plans. This will be similar to existing 80C minus ELSS, ULIPs,Housing loan principal repayment and Registration etc. etc.

    2. Additionally 50,000 will be given for pure life insurance, Tution fees for children, Medical Insurance. Presently the first two are covered in 80C and last one is additional to 80C.

    3. House loan interest presently can be claimed seperately for self owned or even rented property. Same remains. (Additional deduction)

    So this is not as good as it was claimed. As a matter of fact it is worse than existing.

    From above it seems the best tax planning strategy will be:

    1. PPF for self and spouse or children or parents and claim all 100,000.

    2. Take Term Insurance, Mediclaim and send adopted children to college (Joke).

    3. Invest in Equity/Equity MFs for LT and pay nil
    Cap gains.

    4. Trade in Futures and Options and if successful get additional income limit upto 5 lakhs and pay 10% tax, or 10 Lakhs and pay 20% tax. Which is reasonable.

    5. Buy Equities/Funds for short term and pay 15% cap gain tax.

    MK

  • Anonymous says:

    >One question regarding this … at present Can I claim 70k each for myself and my parents (total 2.1 lakh 70+70+70) deduction.

    1. PPF for self and spouse or children or parents and claim all 100,000.

  • Deepak Shenoy says:

    >Thank you sir! Much appreciated. New post soon!

  • Anonymous says:

    >In case of PPF you can claim only max. 100,000 deduction irrespective of any amount you invest. If you have invested 2.1 lakhs you will get only 100,000 deduction.

    Second draft has been superceded by latest cabinet decision especially Cap. Gains.

    MK

  • onlymuks says:

    >Dear Deepak,

    I have been reading all over the net that if you are earning 10L a year, you will save 41040 if DTC is implemented and I am not able to understand this. All I could come up with was a figure of Rs 24000 + Rs 720 Surcharge that can be saved by a person earning 10L.

    What am I missing?

  • Anonymous says:

    >Just digested the DTC bill presented to Lok Sabha:

    1. The biggest shock is Wealth Tax. 1% on assets of more than one crore is killing. It is rumoured that definition of Wealth will include shares and bonds. In that case it will destroy the market. Imagine Mukesh Ambani paying 400 million Dollars per year as wealth tax.
    2. Short term Cap gains on Shares is a very good news for tax planning. If you make one crore gain in STCG and if you are within 5 Lakhs bracket then you pay only 5%. Great deal for Traders and Black Marketers.
    3.Not so good for Equity ULIPS and Dividend Option of Equity MFs. with 5% Div. Dist. Tax.

    4. No more Infrastucture Bonds, ELSS, House Principal repayment rebate.

    5. Very good deal for Health Insurance. Presently only 15K for self health Insurance and 20K for Seniors. Now I can claim Health premium for self and my dependent seniors Father and Mother Med. Insurance upto 50k.

    MK