The simplified Direct Tax Code (DTC) Bill introduced in Parliament on Monday, which will become effective from April 1, 2012, holds a few surprises, including the withdrawal of tax deduction on the principal component of housing loans. The bill, that will replace the Income Tax Act 1961, seeks an increase in exemption threshold of individuals from the current Rs 1.60 lakh to Rs 2 lakh and reduce corporate taxes to a flat 30%.
Revenue secretary Sunil Mitra pointed out that only the interest component of a housing loan will be considered for deductions. So, if your equated monthly installment is Rs 1.50 lakh, comprising interest and principal outgo of Rs 75,000 each, you can avail deduction of only the interest.
The DTC operation has been put on hold for a year to allow all three categories—tax practitioner, tax payer and tax administrator—enough time to become adequately familiar with the new provisions. The bill will now be referred to a parliamentary committee for examination.
If you were depending on a housing loan to cover most of your deduction, the decision to exclude the principal amount will bring it down substantially. Housing loan comprises 50% of the total deduction of up to Rs 3 lakh on savings. Other deductions allowed for individual taxpayers include Rs 1 lakh on pension, PF and gratuity and up to Rs 50,000 for tuition fees, pure life insurance premium and health insurance.
There is no mention of LTA or LTC in the bill exemption list, indicating that these sops have been dumped.