FINANCE TIP OF THE DAY
Can you afford your loan?!
Know the quantity of loan you can afford. The banks may sanction loan based on your income but you should look at your monthly expenditure and see if you can afford the maximum that banks offer. As a thumb rule, remember not to let your credit exceed 40% of your income!
DTC – The good and not so good features!
Since the start of your professional life your well wishers including family members and friends might have told you, “Work Hard and Earn More”. You possibly made it the mantra of your life but the day you received your pan card and approached the income tax department, the mantra started to sound like a myth after your rendezvous with the demon called Income Tax. Now the mantra caption sounds like “Work Hard and Earn More to Pay More in Taxes”.
In such a scenario as a taxpayer you are likely to look out for good news whenever you hear that the policymakers are doing something regarding Income Tax. One such policy decision that is likely to affect you is the introduction of the DTC (Direct Tax Code). The Finance Minister has reassured that the DTC will be hopefully cleared in the winter session of Parliament and will be implemented from Apr 2012. Let’s look at what is in store based on the decisions that stand as of today.
The Good News
Enhancement of Tax Slab
Smile as the tax exemption limit now stands at Rs 2 lakhs which was earlier 1.6 lakhs. The tax burden is lessened by 41,000 in the highest tax slab.
|Individuals Income||Individuals Tax rate|
|Up to Rs 2,00,000||Zero|
|Between 2,00,000 to 5,00,000||10% of (Total Income – Rs 2,00,000)|
|Between 5,00,000 to 10,00,000||30,000 + 20% of (Total Income – Rs 5,00,000)|
|More than 10,00,000||1,30,000 + 30% of (Total Income – Rs 10,00,000)|
Investor friendly Capital Gain Tax
Only half of the short term capital gains on equity will be taxed. Long term capital gains from equity have been left untouched. Capital gains from property will be considered as income and for tax purposes the gain will be added to your income. Hence your tax liability will be calculated as per the slab you fall under after the addition of gains.
Enhancement of Exemption limit from 1.2 Lakhs to 1.5 lakhs
With DTC now it will be easier to claim exemptions as it will reduce the confusing number of investment options available. An individual can still claim deduction of Rs 1 Lakh as per old tax regime but the investment options will reduce to NPS, Superannuation funds and pension funds like EPF and PPF. Also, the exemption for tuition fee for children is now part of this 1.5L where you can claim a deduction for a tuition fee of Rs 50,000 if you pay tuition fees (max 2 children) or if you have taken health insurance/mediclaim policy or if you have invested in pure life insurance product where the sum assured is 20 times annual premium.
Tax benefits of home loan
It is unclear if the principal due repaid for your home loan will continue to enjoy tax benefits but the new DTC bill has most definitely retained the tax benefits on the interest due repaid on your home loan.
EEE treatment of GPF, PPF and pure life insurance products
In earlier tax code, investments in the above schemes were governed as per EET where investment and accumulation was tax free but withdrawal was not. In the New DTC it’s proposed that the withdrawal from these schemes will also be tax exempt.
Enhancement of medical reimbursement limit
Now you can be happy even if you fall sick as DTC proposes to enhance the medical reimbursement limit from Rs 15,000 to Rs 50,000.
The Not So Good News
No Leave Travel allowance
If you like to go on holidays, DTC will tax you from now onwards.
No special treatment for being a woman
No gender bias as per DTC as the extra tax benefit for women seems to be non-existent.
Reduction in tax exemption period of NRIs
NRIs will be taxed if they are earning in India and their stay exceeds from 60 days. Earlier tax exempt period was of 180 days. This sounds like a bad news but the finance minister has assured that this is under discussion and just staying in India for 60 days doesn’t make NRI’s liable for taxation as there are other clauses attached to it.
DTC in its current form sounds to be tax payers friendly and let’s hope Indian Government carry’s on with tax reforms so that we start loving the Tax Daemon. For the time being “Thumbs Up” for the DTC.