Finance ministry has released the second draft of proposed Direct Tax Code (DTC) today, which upon approval will be effective from financial year 2011-12. You can read my initial article on the first draft of DTC if you aren’t aware of this proposal. Let us look at some of the highlights of this draft.
- It proposes the “Exempt-Exempt-Taxation” (EET) method of taxation for savings.
- Based on the EET principle, the Code provides for deduction in respect of aggregate contributions upto a limit of three hundred thousand rupees (both by the employee and the employer) to any account maintained with any permitted savings intermediary, during the financial year.
- The DTC provides that the withdrawal of any amount of accumulated balance as on the 31st day of March, 2011 in the account of the individual in a Provident Fund (PF), Public Provident Fund (PPF), Recognized Provident Funds (RPFs) and the Employees Provident Fund (EPF) will not be subject to tax. There after the new contributions will be subjected to tax as per EET method.
- Tax payers require some flexibility in making withdrawals in lump sum without being subjected to tax. People may need lump sum funds on retirement for various family obligations. Requests have therefore been made for continuation of Exempt Exempt Exempt (EEE) method of tax treatment of investments.
- Investments made, before the date of commencement of the DTC, in instruments which enjoy EEE method of taxation under the current law, would continue to be eligible for EEE method of tax treatment for the full tenure of the instrument.
- An employer‟s contribution to an approved provident fund, superannuation fund and New Pension Scheme within the limits prescribed shall not be considered as salary in the hands of the employee. Also, retirement benefits received by an employee will be exempt subject to specified monetary limits.
- Home Loans : The following deductions will be admissible against the gross rent:-
- Amount of taxes levied by a local authority and tax on services, if actually paid.
- Twenty per cent of the gross rent towards repairs and maintenance as against thirty per cent at present.
- Amount of any interest payable on capital borrowed for the purposes of acquiring, constructing, repairing, renewing or re-constructing the property. (ceiling of Rs. 1.5 lakh)
- No distinction of short-term investment asset and long-term investment asset.
- The capital gains from all investment assets will be aggregated to arrive at the total amount of current income from capital gains.
- The DTC proposes to abolish Securities Transaction Tax.
- The net wealth of an individual or HUF in excess of Rupees fifty crore shall be chargeable to wealth-tax at the rate of 0.25 per cent.
For more information on the revised Discussion Paper on the proposed DTC is available on this link as well as on these two websites – finmin.nic.in and incometaxindia.gov.in Responses to the Revised Discussion Paper should be sent online through the link provided at those mentioned websites or by sending an e-mail to firstname.lastname@example.org All the responses are solicited upto 30th June, 2010.