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Direct Tax Code, 2012

Direct Tax Code, 2012. Unplugged…from the personal finance viewpoin t. Highlights. Applicable from April 1, 2012. Slight upward tweaking of tax brackets Lot of current rules are carried forward Much-watered down version compared to the proposed drastic overhaul

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Direct Tax Code, 2012

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  1. Direct Tax Code, 2012 Unplugged…from the personal finance viewpoint

  2. Highlights www.fpgindia.org

  3. Applicable from April 1, 2012. • Slight upward tweaking of tax brackets • Lot of current rules are carried forward • Much-watered down version compared to the proposed drastic overhaul • Changes in products in Section 80C • Fewer tax savings options www.fpgindia.org

  4. Changes in Sec 80C will increase your tax payout • Products which will no longer give tax benefit: • 5 year FDs • NSC • SCSS • ELSS www.fpgindia.org

  5. Exemption Limit www.fpgindia.org

  6. Provision Impact No separate slab for women Additional savings due to upward revision of slabs • Only two slabs • Senior citizens (up to `2.5 lakh) and • Other individuals (up to `2 lakh) • Change in tax slabs: • up to `2 lakh @ NIL • `2 – 5 lakh @ 10% • `5 – 10 lakh @ 20% • `10 lakh and above @ 30% www.fpgindia.org

  7. Sec. 80 www.fpgindia.org

  8. Provision Impact No change in limit, but change in products PPF Recognised PF New Pension Scheme (NPS) Pension fund Anything else specifically approved • Investments up to `1 lakh www.fpgindia.org

  9. Provision Impact Additional cumulative limit: Pure life Insurance – Any policy where the premium is less than 5% of the sum assured for ALL years of the policy Health insurance Two children‘s tuition fees (including pre-school fees) Sec 80D will cease to exist • Additional limit of `50,000 www.fpgindia.org

  10. Provision Impact Increased limits (individually), but since it is cumulative with life insurance and tuition fees, it is not sufficient • Premia paid for self / spouse / children / dependent parents eligible for overall additional deduction limit of Rs 50,000 www.fpgindia.org

  11. Income from House Property www.fpgindia.org

  12. Provision Impact No change from current status • No deduction on principal repayment • Interest on housing loan for self-occupied property – exemption @ Rs 1.5 lakh • Interest is only deductible if the house is completed within three years of the loan commencement www.fpgindia.org

  13. Provision Impact No tax on notional rent on residential properties that are not self-occupied Cannot avail benefit of interest (earlier full amount allowed) Down from 30% allowed earlier • House property income taxable only where rent is actually received/receivable • Deduction for repairs @ 20% of gross rent allowable www.fpgindia.org

  14. Capital Gains www.fpgindia.org

  15. Short Term Capital Gain Provision Impact Lower STCG tax to be paid, especially for those in the lower tax brackets Earlier it could be completely set-off • Effective tax rate – 5%, 10% or 15% depending on the tax bracket you fall in • In case of STCL - only 50% of the STCL can be set off against STCG www.fpgindia.org

  16. Long Term Capital Gain Provision Impact If the investment asset was purchased any time between 1st April 2010 to 31st March 2011, then to consider it to be Long Term, it has to be held up to 31st March 2012. • Definition of ‘Long Term’ - all investment assets held for more than 1 year from the end of the financial year in which the asset is acquired. www.fpgindia.org

  17. Long Term Capital Gain Provision Impact Many capital gains which were considered short-term (so far) will now become long-term Holding period for indexation/exemption benefit is reduced to 12-24 months maximum • Change in definition for assets other than equity shares and equity mutual funds: • 1 year from the end of the financial year in which the asset was purchased www.fpgindia.org

  18. Long Term Capital Gain Provision Impact At present, base index is taken as 1980-81. The base date would now be shifted from 1.4.1981 to 1.4.2000 Hence, capital gains between 1.4.1981 and 31.3.2000 will not be liable to tax • Change in base year www.fpgindia.org

  19. Long Term Capital Gain Provision Impact Unrealised gains up to April 1, 2000 would go untaxed completely • Indexation and rollover benefit (subject to conditions) available with reference to purchase price, or optionally, fair value as on 1 April 2000, if asset acquired before that date • LTCG can be set off against STCG www.fpgindia.org

  20. Mutual Funds www.fpgindia.org

  21. Provision Impact Currently this is nil Better to choose Growth option, if your investment is with a long term horizon • 5% dividend distribution tax on equity funds www.fpgindia.org

  22. Insurance www.fpgindia.org

  23. Provision Impact Policies with sum assured > 20 times premium will only be tax-exempt on maturity. Most endowment / money-back / ULIPs will be taxable on maturity ULIPs where you have chosen equity-based option (65% or more of equity exposure) will be liable to deduct this tax • Maturity proceeds exempt, if the premium paid in any year < 5% of sum assured & received on completion of original insurance period • Equity-linked life insurance schemes subject to 5% tax on distribution www.fpgindia.org

  24. Pension Plans www.fpgindia.org

  25. Provision Impact Probably ULIPs will take this back-entry and launch ‘Unit Linked Pension Plans’ so that the investor can get the benefit of tax-exempt returns on maturity • Fall under EEE category www.fpgindia.org

  26. Income from EMPLOYMENT www.fpgindia.org

  27. Provision Impact Both will be fully taxable Increase in reimbursement limit from Rs 15,000 to Rs 50,000 • LTC • HRA – Fully exempt to the extent of rent actually paid • Medical facilities / reimbursement - Medical facilities not taxable (as currently applicable) and medical expense reimbursements up to Rs 50,000 exempt www.fpgindia.org

  28. Provision Impact Companies might use this to reduce tax burden of employees Likely to benefit senior employees • Exemption of employers contribution to an approved pension fund – up to10% of Basic+DA • Employer’s contribution to an approved superannuation fund – fully exempt www.fpgindia.org

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  30. www.fpgindia.org

  31. Wealth Tax www.fpgindia.org

  32. Provision Impact Gross assets minus loans on the assets = net assets Does not include the house you live in Includes: archaeological collections drawings paintings sculptures wristwatches worth over Rs 50,000 cash in hand above Rs 2 lakh deposits with foreign banks • Net assets above Rs 1 crore @ taxed 1% www.fpgindia.org

  33. Provision Impact In such a situation, you will have to pay 1% tax on your deposits in foreign banks and on the value of other assets in foreign countries • If you have worked abroad, created some assets there and moving back to India, you will have to pay wealth tax on your foreign assets if you have taken Indian resident status • No education cess or surcharge www.fpgindia.org

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