Pressure from many sections of taxpayers has led the government to effect revisions in its Direct Taxes Code (DTC) proposals.
The revised code has several beneficial aspects of which the most beneficial is that it has toned down its stance on tax concessions granted to home loan repayments.
Going by the plea that without social security the proposed EET (Exempt-Exempt-Taxed) structure was harsh on individuals, the revised code has proposed to bring some relief to long-term savings investment such as PF, PPF, New Pension Scheme, approved pure life insurance, annuity schemes and GPF. These will now be subject to the Exempt-Exempt-Exempt (EEE) method of taxation rather the EET model proposed last year.
The revised code has several beneficial aspects of which the most beneficial is that it has toned down its stance on tax concessions granted to home loan repayments.
Going by the plea that without social security the proposed EET (Exempt-Exempt-Taxed) structure was harsh on individuals, the revised code has proposed to bring some relief to long-term savings investment such as PF, PPF, New Pension Scheme, approved pure life insurance, annuity schemes and GPF. These will now be subject to the Exempt-Exempt-Exempt (EEE) method of taxation rather the EET model proposed last year.
Here`s how some of the provisions affect your personal finances:
Existing and new home loan borrowers have a reason to cheer. The revised DTC proposes to follow the existing method of tax deduction on home loan at least for the interest paid. In case of the house being self-occupied, the individual will be eligible for deduction of interest on capital borrowed for acquisition or construction of the house, subject to a ceiling of Rs 1.5 lakh, from the gross total income.
This revised proposal is a change from the earlier stand of disallowing tax exemptions on the interest and principal paid on house property.
However, the revised code has preferred to be silent on the status of principal repayments on home loans, which are now allowed under section 80C.
While extending this benefit for self-occupied properties, borrowers need to note that the revised code suggests that interest paid towards home loan will be adjusted under the overall savings limit of Rs 3 lakh a year proposed for section 80C.
The New Pension Scheme, which was launched with fanfare as a social security measure, was struggling to find patronage owing to uncertainties relating to its tax structure. In an attempt to make this scheme more attractive and to introduce some flexibility in making withdrawals in lump sum without being subject to taxation, the revised code proposes to extend the EEE method of taxation to the pension scheme administered by the Pension Fund Regulatory and Development Authority, apart from PF, GPF and recognized provident funds.
The revised code has preferred to retain its stand on pure life insurance and annuity schemes, but has kept unit-linked plans out of the EEE method of taxation. ULIPs continue to be clubbed with savings options like the NSC, ELSS and bank deposits.
With annuity products brought under EEE it may encourage long-term savings, and help increase social security after retirement.
The earlier code proposed to remove the distinction between short-term and long-term capital gains, based on the investor`s holding period. Now that has been tweaked.
Under the revised code, capital gains arising on account of transfer of equity shares or units of an equity oriented fund held for more than one year will be computed after allowing a deduction at a specific percentage of capital gains without any indexation.
This `specific percentage` is yet to be notified.
After adjusting the capital gains thus, the balance will be included in the total income of tax payer and taxed at the applicable rate. According to the revised code, the individual in the lower bracket will pay a lower tax for capital gains compared to those in higher tax brackets.
To illustrate, if an investor has invested in an equity fund at a NAV of Rs 10 and sells his unit at Rs 110, the capital gains before deduction at the specified rate comes to Rs 100. Supposing the rate of deduction is 50%, this would stand reduced to Rs 50. The capital gain of Rs 50 would then be added to the tax payer`s income and taxed at the applicable rate. If tax payer is in a 10% slab, such gain will bear Rs 5 as tax.
Existing and new home loan borrowers have a reason to cheer. The revised DTC proposes to follow the existing method of tax deduction on home loan at least for the interest paid. In case of the house being self-occupied, the individual will be eligible for deduction of interest on capital borrowed for acquisition or construction of the house, subject to a ceiling of Rs 1.5 lakh, from the gross total income.
This revised proposal is a change from the earlier stand of disallowing tax exemptions on the interest and principal paid on house property.
However, the revised code has preferred to be silent on the status of principal repayments on home loans, which are now allowed under section 80C.
While extending this benefit for self-occupied properties, borrowers need to note that the revised code suggests that interest paid towards home loan will be adjusted under the overall savings limit of Rs 3 lakh a year proposed for section 80C.
The New Pension Scheme, which was launched with fanfare as a social security measure, was struggling to find patronage owing to uncertainties relating to its tax structure. In an attempt to make this scheme more attractive and to introduce some flexibility in making withdrawals in lump sum without being subject to taxation, the revised code proposes to extend the EEE method of taxation to the pension scheme administered by the Pension Fund Regulatory and Development Authority, apart from PF, GPF and recognized provident funds.
The revised code has preferred to retain its stand on pure life insurance and annuity schemes, but has kept unit-linked plans out of the EEE method of taxation. ULIPs continue to be clubbed with savings options like the NSC, ELSS and bank deposits.
With annuity products brought under EEE it may encourage long-term savings, and help increase social security after retirement.
The earlier code proposed to remove the distinction between short-term and long-term capital gains, based on the investor`s holding period. Now that has been tweaked.
Under the revised code, capital gains arising on account of transfer of equity shares or units of an equity oriented fund held for more than one year will be computed after allowing a deduction at a specific percentage of capital gains without any indexation.
This `specific percentage` is yet to be notified.
After adjusting the capital gains thus, the balance will be included in the total income of tax payer and taxed at the applicable rate. According to the revised code, the individual in the lower bracket will pay a lower tax for capital gains compared to those in higher tax brackets.
To illustrate, if an investor has invested in an equity fund at a NAV of Rs 10 and sells his unit at Rs 110, the capital gains before deduction at the specified rate comes to Rs 100. Supposing the rate of deduction is 50%, this would stand reduced to Rs 50. The capital gain of Rs 50 would then be added to the tax payer`s income and taxed at the applicable rate. If tax payer is in a 10% slab, such gain will bear Rs 5 as tax.
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