The DTC proposes to include only contribution to funds like PPF, PF, superannuation fund and the New Pension Scheme (NPS), up to a maximum of `1 lakh, as eligible investments for deduction under this clause. An additional deduction of `50,000 shall be allowed for payments made towards insurance premium, tuition fees and premium paid towards mediclaim.
Thus, the current deductions under Section 80D with respect to mediclaim premium up to `15,000 for self and an additional `15,000-`20,000 for dependent parents shall stand redundant once the new DTC comes into play with the maximum amount of deduction for mediclaim, insurance premium and tuition fees being restricted to `50,000 only.
What also falls out of the investment ambit is the tax-saving mutual fund schemes (ELSS), unit-linked insurance plans and the five-year tax saving bank fixed deposits. In fact, equity mutual funds and Ulips shall now attract a dividend distribution tax (DDT) of about 5% if the current proposals are accepted. This means that any income received as dividends from equity mutual funds and Ulips will be taxed at 5%.
The DTC proposals also raise doubt about the prospects of infrastructure bonds which were introduced by the finance minister earlier this year, promising an additional deduction of `20,000 with respect to investment made in these bonds as the current proposals are silent on this front.
The proposals continue to allow deduction on interest repayment of up to `1.5 lakh on housing loans. But the new code has done away with the deduction on repayment of principal on such housing loan, which is currently admissible under Section 80C up to a maximum sum of `1 lakh.
EXEMPTIONS: While there is nothing much to rejoice as far as the reorientation of tax slabs and deductions from income are concerned, the DTC proposal to increase the limit of medical reimbursement will bring in some cheer. With medical expenses going off the roof, the DTC proposes to enhance the limit of reimbursement made by an employer for medical expenses incurred by an employee from the current `15,000 to `50,000. DTC is also set to introduce an allowance payable by an employer to an employee to meet his personal expenses.
CAPITAL GAINS: For the relief of many, especially those investing in equities either directly or through mutual funds, the long-term capital gains arising from such investments continues to be tax exempt even under the new DTC. Long-term gains on these instruments arise if the same have been held for more than one year.
As far as the short-term capital gains are concerned, that is gains made on listed equities or equity mutual funds held for a period less than one year, the DTC proposes to tax the same at the rate of 5% or 10% or 15% depending upon the individual tax payers’ tax slab of 10% or 20% or 30%, respectively.
Thus, for a person earning an income of 9 lakh per annum, the applicable tax slab will be 20% and correspondingly any short-term capital gains made shall be taxable at 10%. This appears more benign on investors’ pocket considering the 15% short-term capital gains tax applicable currently.