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

HIGHLIGHTS 2www.fpgindia.org

Applicable from April 1, 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 3www.fpgindia.org

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

EXEMPTION LIMIT 5www.fpgindia.org

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

SEC. 80 7www.fpgindia.org

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

Provision Additional limit of ` 50,000 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 9www.fpgindia.org

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

INCOME FROM HOUSE PROPERTY 11www.fpgindia.org

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

Provision House property income taxable only where rent is actually received/receivable Deduction for 20% of gross rent allowable 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 13www.fpgindia.org

CAPITAL GAINS 14www.fpgindia.org

Short Term Capital Gain Provision 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 Impact Lower STCG tax to be paid, especially for those in the lower tax brackets Earlier it could be completely set-off 15www.fpgindia.org

Long Term Capital Gain Provision 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. Impact If the investment asset was purchased any time between 1 st April 2010 to 31 st March 2011, then to consider it to be Long Term, it has to be held up to 31 st March www.fpgindia.org

Long Term Capital Gain Provision 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 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 months maximum 17www.fpgindia.org

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

Long Term Capital Gain Provision 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 Impact Unrealised gains up to April 1, 2000 would go untaxed completely 19www.fpgindia.org

MUTUAL FUNDS 20www.fpgindia.org

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

INSURANCE 22www.fpgindia.org

Provision 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 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 23www.fpgindia.org

PENSION PLANS 24www.fpgindia.org

Provision Fall under EEE category 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 25www.fpgindia.org

INCOME FROM EMPLOYMENT 26www.fpgindia.org

Provision 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 Impact Both will be fully taxable Increase in reimbursement limit from Rs 15,000 to Rs 50,000 27www.fpgindia.org

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

29 ProvisionsUnder Current LawsUnder DTC GratuityFull exempt for Govt. employees Others – up to ` 10 lakh Exempt for both categories to prescribed limit Voluntary retirement compensation Exempt to ` 5 lakh, subject to conditions Exempt subject to conditions HRAExempt subject to conditions Entertainment AllowanceGovt. employees – Exempt Other – Taxable Taxable for all AccommodationPreferential treatment to Govt. employees for arriving at value No difference between Govt. and other employees Employer contribution to approved superannuation fund Exempt up to ` 1 lakhFully exempt

30 ProvisionsUnder Current LawsUnder DTC LTCExemptTaxable Medical reimbursementExempt up to ` 15,000Exempt up to ` 50,000 Employer’s contribution to NPS Not taxed up to 10% of salary Same Employee’s contribution to NPS Not taxed up to 10% of salary Exempt up to ` 1 lakh Withdrawal from NPSTaxableExempt

WEALTH TAX 31www.fpgindia.org

Provision Net assets above Rs 1 taxed 1% 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 32www.fpgindia.org

Provision 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 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 33www.fpgindia.org