Decoding DTC: Implications for income from various sources

Dilution in DTC to help individuals save on tax outgo The government has retained the form, but abandoned the spirit of the Direct Taxes Code (DTC) to have a simple, clean tax system without exemptions. ET decodes the implications of DTC on income from house property, cpaital gains and the new tax treatment of savings. Tax treatment of savings Comment Mail to friend The DTC has proposed contributions up to Rs 3 lakh in a year (both by employer and employee) to any account maintained by a permitted savings intermediary be exempt from tax, and would remain untaxed if it remained in that account. Withdrawals are to be included in income from residuary sources, and taxed accordingly. Existing schemes are to be grandfathered. Since the switching over to complete exempt-exempt-exempt (EEE) method of taxation is seen to involve administrative, logistical and technological challenges, the revised discussion paper proposed to continue with EET for specified instruments till further notice. The proposal for introducing Retirement Benefits Accounts scheme also shelved for the same reason. Difficulty in putting in place a universal social security benefits tilted the balance. Taxation of income from house property Comment Mail to friend The DTC had proposed presumptive basis for calculating notional rent from house property (at the rate of 6%) with reference to cost of construction/acquisition. It has also proposed to disallow deductions on interest paid on loans for self-occupied houses. Now, rent received/receivable in a year will be gross rent. No presumptive basis to be used for calculation. Deduction on interest paid on loan taken for construction/acquisition will be allowed for one house that has not be let out, subject to overall limit of Rs 1.5 lakh. More @ http://economictimes.indiatimes.com/quickiearticleshow/6052641.cms Direct Taxes Code watered down to keep all happy NEW DELHI: The government has retained the form, but abandoned the spirit of the Direct Taxes Code (DTC) to have a simple, clean tax system without exemptions. A revised discussion paper on the Direct Taxes Code, released by the Central Board of Direct Taxes (CBDT) on Tuesday, dropped many controversial proposals of the original draft code to help individuals and companies save on their tax outgo. These include levying minimum alternate tax (MAT) on gross assets and taxing savings schemes such as the public provident fund at the time of maturity. Companies will pay MAT on book profits. A dilution of the proposals in the draft code would mean a huge revenue loss for the government, which, in turn, will impact fiscal deficit. The trade-off could be to scale down the liberal tax slabs for individuals proposed in the original code. And that is bad news for taxpayers. "The proposed revisions are like old wine in a new bottle," said Deloitte partner Homi Mistry. But revenue secretary Sunil Mitra said the slabs proposed in the draft code were only illustrative. The code has addressed 11 issues, including MAT, tax treatment of savings, taxation of house property, tax treatment of capital gains, status of double taxation agreements and general anti-avoidance rules. CBDT chairman SSN Murthy said the decision on tax rates will be taken later. The draft code had proposed a 10% tax rate for taxable income between Rs 1,60,000 and Rs 10 lakh, 20% for income above Rs 10 lakh but below Rs 25 lakh, and 30% for income above Rs 25 lakh. This could be tweaked and the prerogative to fix the rate will be with the legislature, said a senior CBDT official. Domestic investors in equities will, however, pay capital gains tax on listed shares, with CBDT retaining the overhaul of the tax treatment proposed in the draft code to scrap this exemption. Capital gains will be added to income and taxed according to an individual’s slab. The tax treatment will be similar for non-residents. The securities transaction tax (STT) will, however, stay and rates will be calibrated. CBDT has also sought to end the uncertainty over tax treatment of FIIs. The income of FIIs that buy and sell shares will be treated as capital gains and not business income, which could increase their tax liability. Going by the revised code, individuals will enjoy tax exemptions in select, but fewer, savings schemes. These include the public provident fund, pension schemes, including the government’s new pension scheme, general provident funds, recognised provident funds, pure life insurance and annuity schemes. These schemes will not be taxed at any stage. The move will give a boost to the new pension scheme, which has not found many takers so far. Other savings schemes such as the national savings certificate, bank deposits, unit-linked insurance plans and equity-linked mutual funds will continue to enjoy tax breaks for their full duration. There is, however, no clarity on their tax treatment when the code comes into force. CBDT has also softened the blow on the tax treatment of house property by scrapping the proposal to compute gross rent on 6% of the cost of construction or acquisition. The salaried class too has been spared of a higher tax burden on perks. 1|2|Next > Second DTC draft addresses wealth tax, anti-avoidance rule The effect of taxes on different investments Govt releases new DTC draft, addresses 11 key issues ****************************************** Heard on the Street: High-return hopes lure bargain hunters to DLF High-return hopes lure bargain hunters to DLF Shares of real estate firm DLF rose 3% in a lacklustre market to close at Rs 272.25. The move was supported by good volumes, with over 21 lakh shares being traded on the Bombay Stock Exchange (BSE), compared with the two-week average daily volume of around 17 lakh shares. Dealers tracking the DLF counter say bargain hunters have begun nibbling at the stock, as they feel the risk-reward ratio has improved after the 10% correction following the fourth quarter earnings. Some analysts are still bullish on the stock saying that DLF remains the leader in the sector and will be best placed to benefit from a pan-India recovery in property prices. However, another section says investors betting on DLF shares will have to be patient. They point out that a near-term recovery in the stock price will depend on the company’s ability to retire around Rs 5,000 crore of debt this financial year through a mix of internal accruals and sale of non-core assets. Short-covering fuels market upswing Rising inflation and the spectre of higher interest rates appear to be no deterrents to equity investors, as can be seen from the steady rise in benchmark indices. Dealers say the upswing is now being fuelled largely by covering of short positions by traders/fund managers who had taken a bearish short-term view on the market. Fundamentally nothing much has changed, and the market remains expensive relative to its historical valuations, say market participants. However, many foreign funds which had sold call options on the Nifty at 5100, 5150 and 5200 levels are now scrambling to minimise their losses. They are either squaring off their call positions, buying Nifty futures or a basket of Nifty stocks, say institutional dealers. On Tuesday, the Nifty closed at 5222.35, up 0.5% over the previous close. Real estate scrips fail to floor sceptics Shares of real estate firms were the best performers among sectors on the BSE on Monday. But, some of the astute names in the market are rumoured to be bearish on the sector. The buzz is that an operator, who shares his first name with a union minister, has short-sold shares of real estate companies. In 2008, this operator was believed to have profited in a big way from short-selling shares of real estate companies (Contributed by Santosh Nair & Nishanth Vasudevan) ***************************************** Sintex Industries Mahindra and Mahindra - next few years of growth invested BHEL - no improvement Infosys Technologies - confidence continues Punj LLoyd - large losses Src: ET, Moneycontrol, Smartinvestor, DP blog