Impact of DTC on taxation for salaried individuals
It’s here! With the amount of anticipation that normally accompanies a hotly-publicised Bollywood movie, the Direct Taxes Code (DTC) Bill is finally here.
The DTC will replace the Income Tax Act and ring many changes in personal and corporate taxation. It will come into effect from April 1, 2012.
Here we analyse the impact of the DTC on personal taxation for salaried individuals.
Following its original proposal last year, the government had issued a revised discussion paper in June 2010.
In its original form, the DTC was expected to bring about far-reaching changes in the personal taxation slabs and exemptions.
But what has been tabled in the Parliament appears to be a watered-down version of the DTC.
Same tax slabs for both men and women
The big change is that the same tax slabs will apply to both men and women and the tax exempt savings have been recast.
The Income Tax Act offers individuals an annual deduction of Rs 1 lakh under 80C that can be used for instruments such as PPF (up to Rs 70,000), PF, NPS, ELSS, premium for pure life insurance or ULIP, principal repayment of home loan, NSC, fixed deposits with a maturity of five years, payment of tuition fees for full-time education for up to 2 children.
In the current year, one can get an additional deduction of Rs 20,000 for investing in certain notified infrastructure bonds under 80CCF.
Additionally, 80D gives a deduction of Rs 15,000 towards medical allowance.
Annual deduction raised to Rs 1.5 lakh
Under the DTC Bill, the annual deduction has been raised to Rs 1.5 lakh.
We expect more details on this deduction. It appears that investments in PPF, PF, NPS, pure life insurance policies, savings schemes as notified by the government are eligible for this deduction under EEE category.
EEE refers to tax exemption at time of investment, accumulation and withdrawal. Based on available information, it is unclear whether ELSS and premium for ULIP will be eligible for deduction or not.
If they are eligible for deduction, it will only be under the EET category — exempted from taxation at time of investment and accumulation, but taxable at the time of withdrawal.
Deduction for principal repayment of home loans has been done away with.
(The writer is co-founder, iTrust financial advisors)