Aug 30, 2010
Direct Tax Code Bill - Highligts
Direct Tax Code Bill –
Highlights
The Direct Tax Code Bill (DTC), which was tabled in the Lok Sabha
on Monday, has been delayed by a year. The Bill will now come into effect from
April 1, 2012.
The biggest piece of news for
investors out of the direct tax code is probably that the zero rate of tax on
long term capital gains has been retained. For short term capital gains, half
of the total income would be exempt from taxes while the other half will be
taxed according to the slab that you fall under. So if you are in the lower tax
slabs, your liability could be a little lower. “Shares of companies have a
significant benefit compared to other asset classes as far as capital gains are
concerned as gains from other asset classes will be taxed at full rates,”
The big blow to mutual fund
investors is the fact that income distributed by mutual funds to unit holders
of equity-oriented fund or that distributed by life insurer to policy holders
of an approved equity-oriented life insurance scheme will be taxed at 5 per
cent.
The Direct Taxes Code Bill
(DTC) is expected to boost investment flow into capital markets, as the
government proposes to retain a zero long-term capital gain tax, less than that
proposed in the first DTC draft.
The DTC Bill, introduced
today, proposes to keep long-term capital gain tax at the present level of zero
per cent, that means any investor selling a share after a year of holding will
not have to pay any tax on the gains.
The draft DTC had proposed
long-term capital gain tax at the same rate as that of Income Tax slabs. This
had raised concerns amongst investors. With the DTC Bill retaining the present
status, it will be a boost for capital market as more investments will flow in
Besides, the DTC has also
tinkered with the short-term capital gain tax charged from investors.
Individual investors will now have to pay tax on 50 per cent of the gains
earned. The rate of short-term capital gain tax would be according to the
income tax slab of that individual.
For corporates, the short-term
capital gain tax would be calculated at 30 per cent after deducting 50 per cent
from the overall gains.
The taxation for short-term
capital gains will be in three slabs -- 5%, 10% and 15%, as per reports.
Besides, the new DTC Bill will have dividend distribution tax of 5% for both
equity mutual funds (MFs) and unit linked insurance policies (ULIPs).
The Bill proposes to raise the exemption limit on income tax
from the current Rs 160,000 to Rs 200,000. Introduced by Finance Minister
Pranab Mukherjee, the Bill seeks to widen income tax slabs to levy 10 per cent
rate on income between Rs 200,000 and Rs 500,000, 20 per cent on between Rs
500,000-10 lakh and 30 per cent above Rs 10 lakh (Rs 1 million).
For senior citizens, tax exemption is sought to be raised to Rs
250,000 from Rs 240,000. Currently, income between Rs 160,000 and Rs 500,000
attracts 10 per cent tax; between Rs 500,000 and Rs 800,000, 20 per cent and
beyond Rs 800,000, 30 per cent.
Savings of up to Rs 14,040!
People earning more than Rs 10 lakh a year may save up to Rs
41,040 in income tax, if slabs proposed by the Direct Taxes Code Bill come into
effect, experts said.
Similarly, tax burden would reduce by Rs 21,540 for those earning
annual income between Rs 5 lakh (Rs 500,000) and Rs 10 lakh (Rs 1 million),
while those making Rs 2 lakh (Rs 200,000) to 5 lakh could be richer by Rs
7,660, Deloitte Haskins & Sells partner Neeru Ahuja said.
According to the bill presented in the Lok Sabha on Monday, income
from Rs 2-5 lakh is likely to attract tax rate of
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