Direct Tax Code

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The New Direct Tax Code (DTC) of India is expected to substitute the Income Tax Act of 1961 that is presently in operation. The bill had been presented at the Parliament
on August 30th, 2010. According to experts, the new code has lesser benefits compared to the Income Tax Act of 1961.

The Union Finance Minister Pranab Mukherjee had reiterated while presenting the 2010 Union Budget, that he will ensure the new DTC came into force on April 1st, 2011. The New Direct Tax Code is now supposed to be applicable from April 1st, 2012.

Direct Tax Code Highlights

  • The new DTC does away with majority of the categories that were earlier exempted from taxes such as Unit Linked Insurance Plans (ULIPs), Long term infrastructure bonds, Equity Mutual Funds (ELSS), repayment of house loan principal, Term deposits, stamp duties, National Savings certificates (NSC), and registration fees for buying residential properties.
  • There will be no tax exemption for leave travel allowances.
  • The upper limit for tax saving investments will be INR 100,000. But in case of pure life insurance there will be an addition of 50,000 rupees – the sum of insurance should be, at the minimum, 20 times more than the premium. This facility will also be available for health insurance, tuition fees of children, and mediclaim policies. Tax payers will be able to make tax saving investments up to 1 lakh rupees in provident funds, gratuity funds, superannuation funds, and new pension schemes.
  • Tax exemptions provided for education loans will remain the same as earlier.
  • As before, tax exemption will remain the same in case of the interest paid for home loans – INR 1.5 lakhs per year.
  • Corporate taxes have been reduced to 30 percent from 34%. This will be inclusive of the education surcharge and cess.
  • Short term capital gains will be taxed at 50 percent. Long term capital gains such as equity mutual funds and equities, where STT is being paid, will be exempted from taxes.
  • The upper limit for medical repayments has been increased from INR 15,000 per year to 50,000 rupees per year.
  • Tax exemption will be provided for savings, withdrawals and accretions of GPF, PPF, and EPF. This benefit will also be applicable for the New Pension Scheme being managed by the PFRDA, pure life insurance products, and retirement benefits such as leave encashment and gratuity, and annuity schemes.
  • Equity mutual funds will be subjected to a dividend distribution tax (DDT) rate of 5 percent. DDT from non equity funds will be taxed as per the yearly income of the concerned investor. If dividend from non-equity funds exceeds INR 10 thousand the TDS will be 10 percent. In case of companies and NRIs this rate will go up to 20%.
  • Education cess and surcharge have been removed.
  • In case an NRI stays in India for a minimum of 60 days he will be required to pay a tax on his aggregate income.
  • Deductions for rent and maintenance will be brought down to 20 percent from 30% of the gross rent. Interest paid for house loans in case of a rented property will now be deducted from the rent.

Direct Tax Code – Slabs

The following table shows the new income tax rates to be applicable from April 1st, 2012 onwards:

Yearly incomeTax rates
More than 10 lakh rupees30 percent
Within 5 lakh and 10 lakh rupees20 percent
Within 2 lakh and 5 lakh rupees10 percent
Up to 2 lakh rupees (in case of senior citizens this amount will go up to INR 250,000)Exempted

Direct Tax Code – Capital Gains from Property Sales

As per the new direct tax code, in case of properties sold within a year the income will be added to the taxable salary. For long term gains, like in case of properties sold after more than one year of buying them, the gains will be added to the taxable income after indexation.

The tax will be deducted as per the annual income of the concerned tax payer. The base date for calculating the acquisition costs has been changed to April 1, 2000 from April 20, 1980.

Last updated on 12/6/2015

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