Direct Taxes Code Bill 2009

Finance Minister of India Pranab Mukherjee, on 12 August 2009, unveiled the Direct Taxes Code Bill, 2009, to be introduced in Parliament later this year.

If enacted, the Bill will not only change the amount of tax you will pay and how but will also transform how you invest, borrow and spend your money. The unveiling of the Direct Taxes Code will be followed by Public debates before Parliament debates it.

It will not be before financial year 2011-12 that this tax code will be put in place, if passed by Parliament.

Even as experts examine the finer details of the said proposals of the new tax code, here are informations of the proposed changes:-


(1) One of the hallmarks of the new tax system is the substantial expansion of income slabs. For instances for an individual, annual incomes up to Rs. 1.60 lakh would be tax-exempt, a 10 per cent tax rate would be applicable for incomes between Rs 1.60 lakh and Rs 10 lakh, 20 per cent for income between Rs 10 lakh and 30 per cent for income above Rs 25 lakh. All this will mean significant tax savings when the code comes into force. The present income slabs are much narrower and the tax liability is significantly higher under the proposed Direct Taxes Code, the slabs have been significantly enhanced to take into account realistic income slabs.

If generosity marks the changes in income tax slabs, its absence marks other areas. Currently exempt allowances and benefits such as leave travel assistance and medical reimbursements would be fully taxable under the code. Existing tax benefit for interest payment on home loans with an annual limit of Rs. 1.3 lakh per individual is also in danger. This critical driver of the recent real estate boom will be withdrawn if the Direct Tax Code Bill is implemented. But if you have rented out your home that you don't occupy, you will continue to get the existing tax break for unlimited tax deductions for interest payments on loans taken to acquire. At the same time, removal of deduction for house rent allowance (HRA) has been proposed.


(2) The Direct Taxes Code Bill, 2009 has proposed changes in the taxability of capital gains hereasunder:-

1-Distinction between long-and short term gains to be removed.

2-All gains from capital assets like equity shares, mutual funds, physical gold, gold exchange traded funds and real estate to be taxable.

3-Gains made within a year to be added to income without indexation benefit.

4-Gains made after one year to be added to income after indexation benefit.

5-Securities transaction tax (STT) to .

The code may have done away with the numerous tax breaks, but it has still provisions for tax-saving investments. Its limit has been ascertained Rs 3 lakh per annum. But the trick is that you will be allowed to invest only in certain options-Public Provident Fund (PPF), Employees' Provident Fund, life insurance, superannuation funds and National Pension System (NPS), besides claiming for children's tuition fees expenses. This simply means no more tax breaks for National Savings Certificates Senior Citizen's Savings Scheme, tax-saving bank fixed deposits and equity-linked savings schemes (EISS) of MFs.


If has been proposed that the maturity proceeds of PPF and insurance be taxed. In case of insurance policies, there is an exception. Deduction will be allowed in respect of any sum received under a life insurance policy, including any bonus, only if the premium payable for any of the years during the term of the policy does not exceed 5 per cent of the capital sum assured and the sum is received only upon completion of the original insurance or upon the death of the insured.


The message is clear, you can get tax breaks for retirement savings or educational expenses. The existing tax breaks for health insurances with the existing annual limits of Rs. 15,000 and Rs 20,000 for senior citizens, as will as those for interest repayment for educational loans and notified donations will continue in the Bill too. Here is how taxable income will be calculated if the Direct Taxes Code Bill, 2009 is enacted:-

Gross Total income

(1) Income from employment.

(2) Income from house property.

(3) Income from business.

(4) Capital gains.

(5) Income from residuary sources.

(6) All income taxed at special rates, example-Capital gains on transfer of
shares/equity mutual funds.

Deductions

1- PPF, EPF, insurance, NPS, Tuition fees.

2- Medical donation, higher education.

Here are some major changes proposed in the Direct taxes Code Bill 2009 that have come to knowledge. In the days to come many more aspects may come to light for now, it will suffice to say that the gains from wider and simpler tax slabs, larger provisions of tax-advantaged long-term savings far outweigh the loss of the plethora of tax-savings.