Jagoinvestor
August 27, 2010
New Direct Tax Code disappoints Investors
Update Aug 30 ,2010 , 5:00 PM : This post should be now considered as post with old information as after DTC was tabled in Parliament , there were many changes in DTC.
Also DTC Bill has been delayed by 1 yrs and will come into effect from Apr 2012 , Link
Cabinet has finally approved the Direct Tax Code and now it would go to Parliament for approval and as per tax expert, Subhash Lakhotia is would be easily passed by the Parliament. Finally, the Tax system of our country is going to simplify after The new tax code comes into effect from Apr 2011 next year. The bad part is that the tax slabs have been revised and now it’s much lesser than what was proposed earlier (Link)
Change in Tax Slab
New Tax Slab : 10% for 2-5 lacs , 20% for 5-10 lacs and 30% for above 10 lacs
Proposed Tax Slab earlier : 10% on 1.6-10 lacs , 20% for 10-25 lacs and 30% for above 25 lacs.
Some More Features
- Deductions from taxable income will be available for interest on housing loans up to Rs 1.5 lakh per annum
- For women and senior citizens, the exemption limit would be Rs 2.5 lakh per annum
- Up to 1 lacs could be saved for payments into PF and similar superannuation schemes
- Deduction of up to Rs 50,000 for life insurance and health insurance premiums or tuition fees.
- Securities Transaction Tax (STT) and Education cess are out .
- Life Insurance payments and mutual fund income are liable for 10% TDS (source)
- HRA is no longer available.
You should note that all these changes are going to happen from Apr 2011 (next year). For this current year, everything is same (you will get same old 80C deductions)
Why Public might get disappointed
The biggest blow is the change in the tax slab, especially investors who earn in range of 5-10 lacs per year, earlier Financial minister promised that the tax would be 10% up to 10 lacs , but now there is 20% tax for 5-10 lacs range, which means that effectively the tax paid would be 2 times of what it would have been earlier. Also even for high earning people who make in the range of 10-25 lacs, earlier it would have been 20 %, but now it would be 30 %, which is good enough disappointment:).
Here is a nice video that would give you a good insight into what to expect from the Direct Tax Code.
Comment on how you feel about the tax slab ? Are you happy about it or disappointed? I think it would be a big disappointment for a lot of people, at least personally I am disappointed by that 🙂 .
For life insurance, in case of death, currently, the money that the survivor/nominee gets is tax free. Is DTC saying that this money that the survivor gets is now going to be taxed?
DTC
no , its not going to be taxed 🙂
Manish
Hi Manish
Thanks for ur reply.One more doubt that at the time of maturity my policy will be taxable?
Puneet
Which policy ? MF or ULIP or Endowment ?
Manish
Hi
I have jeevan anand policy and that is money back policy.My premimum is less than 5% of sum assured but i have doubt that till now i was getting tax rebate on premium i was paying.Now there will be tax rebate on this premium amount or not.
Puneet
It will still be there . Till 2012 (for next 2 yrs) , we have the old law under which you can invest upto 1 lacs and get tax exemption (its not called rebate) . After Apr 2012 , its limited to 50k .
Manish
Manish,
What do you think about the imposition of 5% DDT on dividends declared by Equity MF’s? Sheeesh !!! And DDT on ULIP’s, do ULIP’s even declare dividend?
These folks sitting in the Finance Ministry are a bunch of jerks, IMHO.
Ashwani
Tough to give immediate response , will talk on this later 😉 . Better you share your thoughts in detail
Manish
Hi Manish,
As always, your blog is very informative and lucid language help us to understand the complex issue is relatively simpler manner.
Now, Principal component from housing loan has been removed from 80C. What will be the probable impact on real estate. Do you / readers of this blog forsee any reduction in property rates. I think there will be an impact as most of the them buy house as investment and tax saving
Regards,
Jayesh
Jayesh
I dont see much impact because of it , anyways earliar most of the 80C was filled up becasue of EPF and other instruments rather than home loan principal component . so this is not a big deal
Manish
Hello,
I’m not sure about old insuranse policies issued before DTC comes into effect. I have some money back policies from LIC and also investements in Jeevan Aastha. Will maturity proceeds be now taxable or only insurance policies sold after April 1, 2012 will be treated under EET.
A report by E&Y reads
“Amounts received during the term of the insurance contract under cash back insurance policies would become taxable; Threshold of 5% of sum assured seems to be too low — may affect even genuine policies; No grandfathering provisions for presently issued policies;”
Ashwini
You will have to pay the tax incase your premiums are more than 5% of SA, becasue you will make the payments even after DTC comes , for now I would say DTC is like a Chameleon which changes its color every other day .
Manish
+1
Thats not what was proposed originally, not even clsoe to that. They have messed up the whole idea of DTC.
Agreed
Even I am scared that after 1-2 yrs again a lot of things will change and I have write a new post 🙂
Manish
hey bro
i heard that DTC will now come in to effect from 2012 onwards
Yes 🙂
I have updated this information in the start of the post
Manish
Read on …. http://sify.com/finance/tax-code-only-from-2012-news-news-ki5cEPeidib.html
Harpreet
Thanks for the link , will soon post the updates about DTC
Manish
Manish,
The god listen to the prayers of men it seems, that the govt is going to put men and women under one category of basic exemption Rs. 2L.
http://timesofindia.indiatimes.com/business/india-business/New-tax-code-takes-away-sop-from-women/articleshow/6465034.cms
”
Revenue secretary Sunil Mitra, briefing the media on the bill, pointed out that only the interest component of a housing loan will be considered for deduction. So, if your equated monthly instalments add up to Rs 1.5 lakh and comprise an interest outgo of Rs 75,000 and an equal amount as principal, you can avail deduction of only the interest or Rs 75,000.
Incentives have been withdrawn for women taxpayers by clubbing them with men, with income up to Rs 2 lakh exempt. The earlier proposal was to place women taxpayers and senior citizens at an exemption level of Rs 2.5 lakh.
“
SNV
yea .. I saw that yesterday . You seem to be excited on bring women limits down to men 🙂 .
Manish
I think as per my knowledge the New Tax Code will effect from April 2012, in your article you mentioned April 2011. Please check if I am not wrong. Second there is a exemption in Pure Life Insurance Premium which means people will now get the importance of Term Insurance and will get covered themselves with risk cover.
dear all !
WELLCOME
thanks for this service.
kindly note this DTC is effective from 1 st april 2012.so we have enough time.
i think it is not clear on EEE for life insurance premiums.let us wait…
by the bye have you checked the NEW ulips ?
commissions have come down to 6 % maxium.
we were told to highly CONCENTRATE on traditional plan for which every thing is same .
what do you mean by “we were told to highly CONCENTRATE on traditional plan for which every thing is same .”
also there is no confusion on the status of Life Insurance , for all the life insurance where premium is more than 5% of SA , it would be EET else EEE . Pure life cover policies like term insurance would be EEE >
Manish
Deferred by one year !!!!!
http://business.rediff.com/report/2010/aug/30/direct-tax-code-bill-deferred-by-a-year.htm
interesting thread of comments here. Though, I am not a big fan of getting into minutiae of how much tax I will pay & how much I save. But, for most salaried people who plan taxes thru housing loan (esp. individual like Pattu), removing HRA & reducing deduction for home loan is certainly a big blow.
I am actually more disappointed at the maze of exemptions & deductions still remaining. What was Congress harping on was DTC will make tax compliance & administration simpler. But there are still exemptions remaining? Why on earth we need them. Reduce the actual tax slabs & the whole thing would have been simple. I mean, as a person, I would still be required to plan – so much Insurance, so much PPF, etc. etc.
It would be best if Government would have moved to Tax-Exempt-Exempt regime. Tax everything in the beginning at lower rates & let me be “free” to do whatever I do in certain select instruments! U.S. has this regime. People who are working in U.S. can throw some light here.
US does not have a TEE regime. Only one vehicle is available for this and it is the Roth IRA with limits on how much you can put in it. Mostly everything else is EET or TTT.
Thanks for the reply 🙂
Manish
tax should be based on family income rather than individual income
Good point!
In countries like Singapore there is tax exception if your dependent is not working.
Good point!
In countries like Singapore there is tax exemption if your dependent is not working.
Thats a nice thing , indirectly they consider family income and not personal
There is so much of black money in india just because people are not feeling comfortable to give 30% of their income as tax, even if they are making crores. If rates are kept low for first 10lacs, it helps middle class and slashing the maximum rates to 20% will help govt to uncover huge pile of black money.
HNI invests in property & than let it on rent, they get deductions on interest as well as on principal and the best part is that the loss can be carried forward for eight years.
agreed
First of all there is nothing ‘DIRECT’ about this tax code. it would have been direct had the govt reduced the tax rates and removed all the tax incentives. Why should the renters subsidize the people who buy houses ? Why should the uneducated folk subsidize education for other people?
Vinayaka
Agree 🙂
Manish
one more thing. the exemption limit of 3 lacs i have mentioned should be for both men and women. when will the govt. stop being discriminatory? but i do like to add here that senior citizens who cannot earn unlike their young peers due to old age should be exempt from paying tax upto 5 lacs income p.a. 🙂
Yea .. No distinction should be there for men and women and I support that tax for senior citizen should be removed , anyways we dont have any social security 🙂
Manish
I think those 3Lakh draft have been change to 1.5 lakh now.Do take a note of same Manish Sir once its out
Sohil
Yes noted, but lets wait more now , as DTC is now shifted till 2012
manish
extremely disappointing. here are my recommendations. i know its futile but nonetheless, here they are:
1. no income tax upto 3 lacs per annum. afterALL, 25000/- p.m. just about manages to run the household in todays’ high inflationary times !
2. exemption under section 80c upto 3 lacs for payment of life insurance policies, ppf, eppf, health policies etc.
3. tax slabs:
3,00,000-10,00,000 5%
10,00,001-24,00,000 10%
24,00,001-50,00,000 30%
50,00,001- 1 crore 40%
1,00,00,001 & above 50%
In other words filthy rich should be taxed heavily. SPARE THE POOR PLEASE FM !
Shaheen
Thats too optimistic I guess , 3-10 lacs just 5% , not going to happen in the life time . But it looks juicy 🙂
Manish
Logically you are right.
But it wont happen .The uber rich knows where to park the money(SEZ ,exports angle etc etc).And get full rebate
But the upto 10 lakhs if they would have kept 10% rate even i would have loved to pay 20-50k taxes from my business rather than avoiding it.
d-uh.why should the filthy rich be robbed off 50% of their income? did they steal it from you?. if you wish ill for others,its gonna come back to bite you.
taxation is theft.always.whatever be the noble sounding reasons it is imposed on. no different from serfdom.
the govt wants to push india down the US path -everyone will now stop renting -no tax benefit.the only beneficiaries? the housing builders who’ll have more citizens taking unservicable loans to fuel useless consumption.
dude. there is no need to get personal. if i was in the habit of wishing ill for others then i would not have added the comment that income exemption for senior citizens should be 5 lacs instead of 2.25 lacs presently. why should the filthy rich not be heavily taxed when they can afford to do so? why should the poor be asked to shell out 10% of their income when they can barely meet their expenses? remember people falling in the 10% tax bracket have not only themselves but others in the family to support too. they could be dependents like old parents, wife, unemployed or under age children. whereas a person earning 1 crore and above too might have these liabilities but 50% taxation will still leave him/her with 50 lacs to spare which is a lot of money my friend and can easily support many liabilities.
secondly taxation is not theft. how do you propose to support the defense services of our country like the army, navy and the air force without tax? how do you propose to support the subsidies offered by our govt. for fuels like kerosene and LPG? how do you propose to support road building in remote areas of the country by the Border Roads Organization which leads to development of people socially and economically? How do you propose to offer cheap subsidized education in villages and far-flung areas of the country which do not interest private players who see education only as a money-minting business and not as social responsibility? How do you propose to support development in Space Study and Research & Technology by our govt. without tax money? The last but not the least, how do you propose to run the judiciary in our country without tax money?
GOT BETTER IDEAS? PLEASE SHARE WITH US.
See why the richs are not very heavily taxed is
1: You never know where business will go if they are taxed heavily of course they will charge you much more than they are as paying tax will be their more concern than paying tax.SO a nano which comes under 1 lakh will cost 2.Than its ultimately the poorer who suffers
2 : Indirect tax is also a part of our system and that takes care from the rich as they pay more that way.And inorder they serve to society they are given tax rebates which finally serve as job centres for the poorer.
3: Heavily taxing wont reduce tax problem on the contrary it will increase tax robbery.Why do you think is the money going outside INDIA ?If the structures is more rationalized at-least it will be parked here.Big decisions are taken very slowly here .
As mentioned earlier.Audit limit for businesses should be increased.
Taxing at lower level should be more convenient like 10% upto 10Lakhs .
Salary class should be given standard deduction as business people showing any liability can reduce their gross net but that is not the case with salary guys.
it is difficult not to get personal when your whole thinkin is permeated by socialist claptrap. the defense budget is the only justifiable tax.why do the rich have to pay more?because they can afford it?.thats a laughable justification.can somebody steal from you just because it is not much?
taxation is forced extortion of money for activities which can 99% be done better by private individuals or groups. you think the govt is doing a gret job with a)education b)defense c)roads or whatever imagined noble activity you can think of?
on the other hand it is difficult to not notice that things the govt has got away from a)mobile telephony b)computer industry have blossomed .
you are a successful product of the socialist education system that venerates govt taxation.i am sure they would love more such serfs to be churned out.
i never said that govt. is doing a great job. but whatever little it is doing, it requires funding. its done from the tax money that is collected from the general public, rich or poor. to be honest, even i desist from paying tax but got no choice, got to pay it if i fall in the income tax bracket. how many private individuals and companies are building roads, providing education, and doing other activities i have listed in my previous post, for the social and economic upliftment of the country? rich should be taxed more because they can afford to pay is in my opinion the right thing to do and every one is entitled to their opinion. why i say so, i have explained it already but if you could not understand it then i can do nothing about it. no need to get personal please.
I’m not disappointed with new revision of DTC as I was already under impression that Govt has no guts to implement the original proposed draft and would screw it almost up to the level of current I-T laws before implementation. Can anyone explain why house loans are cheaper than Education loan? the deep pocked real-estate lobby don’t let Govt to scrap exemption in Housing loans. Though, positive changes are happening but we should not expect drastic overhaul.
Jagbir
Are educational loans not cheaper than housing ?
Manish
Hi
I have taken educational loan from PSU. They charge between 10-12%
Oops
thats more than what I had thought
Manish
Thats what I call “key to happiness is low expectations”
Manish
Beyond April ’11, I wonder, after my next appraisal, will I still be saving more than what I m right now…!
Yogesh Tiwari
Yogesh,
I think, we need to rephrase the statement, “After my next appraisal, will I be earning more ..or paying more than iam doing currently ” 🙂
Also one thing regarding HRA, folks who dont own a house and live in a rented house, are impacted mostly, than [ I should say “compared to” ] the folks, who are owning a house and paying EMI.
Yes
Agree , people living on rent would loose the HRA benefit , thats a blow 🙂 . However there might be some thing which employer should be doing like free accomodation or subsidised one
Manish