Sponsored
    Follow Us:
Sponsored

The Direct Tax Code is a bit of a mixed bag for individuals, particularly the salaried class. Prima facie, the tax liability will reduce significantly as the draft code proposes to tax incomes up to Rs 10 lakh at 10%, that between Rs 10 lakh and Rs 25 lakh at 20% and sum in excess of that at 30%. Thus, an individual with taxable gross income of Rs 10 lakh will pay tax of Rs 84,000 as opposed to about Rs 2.11 lakh he pays this fiscal year.

Also, deductions allowed for investments in specified investment instrument—mainly long-term savings and retirement savings—will go up to Rs 3 lakh from Rs 1 lakh. The bad news is that retirement savings will become taxable on withdrawal, as the draft code has proposed to usher in exempt, exempt, tax (EET) regime. More significantly, the deduction of Rs 1.5 lakh allowed on interest paid on home loans appears set to be scrapped. There is no mention of such deduction being allowed in the draft code.

It is also proposed that all perks are to be considered part of the gross salary for the purpose of taxation. The impact of that on tax liability of an individual will be known only when the rules are prescribed by the income-tax department at a later date.

But one thing is certain. The tax treatment of the perks enjoyed by the government employee and the private sector employee will be the same. The objective according to the draft code: To improve both the horizontal and vertical equity of the tax system across employees in all sectors.

It has also proposed that benefits such as gratuity payment made to employees on change of jobs will be allowed tax exemption only if it is invested in a retirement fund. If an employee fails to invest it in such fund, such receipts will be taxed at the appropriate marginal rate of tax.

The most significant change is the proposal to bring in the EET regime for all approved provident funds, approved superannuation funds, life insurance and New Pension System trust from April 1, 2011. The NPS is already subject to EET, where contributions and accruals in the scheme are not taxed but withdrawals are subject to tax. The withdrawals will be taxed whenever they are made, that is, at maturity or prematurely at the personal marginal rate.

“Any withdrawal made, or amount received, under whatever circumstances, from this account will be included in the income of the assessee under the head ‘income from residuary sources’ in the year in which the withdrawal is made or the amount is received.”

Sponsored

Join Taxguru’s Network for Latest updates on Income Tax, GST, Company Law, Corporate Laws and other related subjects.

Leave a Comment

Your email address will not be published. Required fields are marked *

Sponsored
Sponsored
Ads Free tax News and Updates
Sponsored
Search Post by Date
December 2024
M T W T F S S
 1
2345678
9101112131415
16171819202122
23242526272829
3031