12 Dtc Presentation

8/8/2019 12 Dtc Presentation

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DRAFT ON DIRECT TAX CODEDRAFT ON DIRECT TAX CODELIKELY TO BE APPLICABLE BY 1LIKELY TO BE APPLICABLE BY 1STST

APRIL 2011APRIL 2011


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IMPORTANT ISSUSES RELATEDTO DIRECT TAX CODE

(DTC).

1.DIRECT TAX CODE: IMPLICATIONS FOR HOUSING, INSURANCE ANDEQUITIES INVESTORS

2 .DEDUCTION OF SPECIFIED PERCENTAGE FROM LONG-TERMCAPITAL GAINS IS A RELIEF

3. CHARTERED ACCOUNTANTS ARE LIKELY TO ADVISE SELLING EQUITYASSETS WHENEVER OPPORTUNITY TO BOOK PROFITS

4. INSURANCE: WORK YOUR TERMS

5. ULIPS AND ENDOWMENT PLANS EXPECTED TO COME UNDER EET

6. MUTUAL FUNDS: GET DEBT, GO

7. LOWER INCOME GROUPS TO GAIN

8. HOUSING: SCORING A HOME RUN


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1. DIRECT TAX CODE: IMPLICATIONS FOR HOUSING, INSURANCE ANDEQUITIES INVESTORS


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At first sight the revised proposals under DTC give an impression that exemptions

are back where they were. But a closer look at the details reveals that there is a twist

in the tale. While it is a positive for housing, the same holds out a mixed bag for

investors in insurance & equities.

The revised discussion paper on DTC has softened the blow on long-term equity

investors. The earlier version of the code had proposed a long-term capital gains tax

on sale of long-term investments.

If the proposals in the revised draft are implemented, a specified percentage will be

deducted from long-term capital gains (instead of factoring in the indexation benefit)

before adding the same to the individuals income for computing tax as per theapplicable slab rate.


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2. DEDUCTION OF SPECIFIED PERCENTAGE FROM LONG-TERMCAPITAL GAINS IS A RELIEF

Compared to the earlier draft, the proposal to deduct a specified percentage from long-

term capital gains is a huge relief,


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Another change is that in the new regime, any equity asset that is held for a

period of more than one year from the end of the financial year in which it is

acquired will be termed a long-term investment while earlier any asset held for

more than 12 months was considered long-term

The revised draft has offered to provide for a transition regime for tax on long-term

capital gains. However, the clarity on this count is yet to emerge. This apart, under the

revised draft, non-residents will be treated at par with residents for taxation of suchcapital gains.


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4. INSURANCE: WORK YOUR TERMS

At first look it appears that existing tax breaks will continue on life products under

the revised Direct Tax Code. But a closer reading shows that this is not the case.


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In the earlier code, it was proposed to tax maturity benefits of life insurance

policies. Revised code reverts to existing exemptions but specifies that these are

available only for pure insurance plans. Since no definition is provided for a pure

insurance plan there is confusion

If implemented, the changes in the tax system will be prospective in nature and

products that are bought after April 1, 2011, will be subject to the proposed tax

system.

At present maturity proceeds of a life insurance policy are tax-free in the hands

of the individual. Life insurance has been, therefore, popular as an investment

vehicle because of this three stage tax exemption (tax breaks for investing, tax

benefits on gains by the fund and tax free maturity benefits).


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5. ULIPS AND ENDOWMENT PLANS EXPECTED TO COME UNDER EET

Under DTC II, if it is a non-annuity investment product, the maturity proceeds

will be added to the income of the individual and taxed at a marginal rate.

Investment products such as unit-linked insurance plans and endowment plans

are expected to come under EET regime


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Ulip is offered similar tax treatment that of a mutual fund as both of them

offer similar solutions to investors. However, there is a need to have some

clarity for better interpretation, says Satish Mehta, MD & CEO,

personalfn.com, a financial planning and advisory web portal.

An industry expert is of the opinion that the government may specify a certain

minimum ratio of premium paid to maturity benefit for a product to qualify as

pure insurance plan.

Annuity products are also allowed EEE tax treatment. This proposal, if it goes

through, will encourage long-term savings aimed at better retired life for individuals. I

the absence of social security benefits, even individuals employed in the unorganized

sector need some support and the current proposal on annuity plans is a better

solution. But the annuity received from an insurer in the hands of the annuitant istaxable.


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6. MUTUAL FUNDS: GET DEBT, GO

Currently as perSection 80C of the Income-Tax Act, an individual can claim a

deduction of Rs 1 lakh for a wide cross section of investments, including equity-

linked mutual funds.


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As per the new tax regime, this is proposed to be raised to Rs 3 lakh per

annum. Added to this, till now this investment could go only in equity-linked

mutual funds, however, in the new Direct Tax Code, you can invest this amount

in debt-oriented mutual funds also.

This flexibility will help financial planners recommend debt products also to

investors who do not have an appetite for equity products. Above all, this is a

positive move for the mutual fund industry, which could witness higher fund flows.

In terms of capital gains, there is one change. Capital gains will be calculated forthe asset held for a period of more than one year from the end of financial year in

which asset is acquired, says Ranjit Dani, a financial planner. While earlier long-

term capital gains would be 366 days, now it could be from 366 days to 730 days,

depending on the period when the purchase was made in the financial year


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7. LOWER INCOME GROUPS TO GAIN

Capital gains will be included in the total income and taxed at the applicable rate,

says Sandip Mukherjee, executive director, PwC.


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Capital gains arising from sale of units of an equity-oriented fund, which are held

for more than one year, shall be computed after allowing a deduction at a specified

percentage of capital gains without any indexation. Therefore, if the capital gains

before the deduction at the specified rate comes to Rs 100, it would stand reduced

to Rs 50 (if the specified deduction rate is 50%).

This capital gains would then be included in taxpayers total income and taxed at

the applicable rate. While those in the lower tax bracket will benefit, since short term

capital gains currently stands at 15%, those in the uppermost tax bracket will not

gain. However, as there will be a shift from nil rate of tax on listed equity shares and

units of equity-oriented funds held for more than one year, an appropriate transition

regime will be provided, so that the markets are not disturbed


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8. HOUSING: SCORING A HOME RUN


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The revised Direct Tax Code proposals should bring cheer to home-buyers

and home owners alike. DTC II has done away with the concept of

presumptive/notional rent and any house property not let out for any part of

the year will be considered to have nil value.

However, no deduction for taxes or interest will be allowed for such housing

property. The removal of taxation based on presumptive rent is in line with the

international practice of taxing real/actual income instead of notional income,

says Vikas Vasal, executive director, KPMG.

As per the earlier draft of DTC, the gross rent from house property was

proposed to be determined at higher of contractual rent or presumptive rent. Asper the earlier draft of the DTC, the presumptive rent was to be determined at

the rate of 6% of the value fixed by the local authority or the cost of

construction/acquisition of house property.


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PRESENTED BY

PUNIT BHANDARI

BCOM(H),CA-FINAL

EMAIL:[email protected]

SOURCE:-ECONOMICS TIMES.

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12 Dtc Presentation