Government may increase Income Tax exemption Limit in budget 2011-12
Due to the high inflation impact, the central government may hike the Income Tax Limit in the coming Budget on February 28 for the Financial Year 2011-2012.
Women: - 1.9 lakh
Senior Citizen - 2.4 lakh.
In the Direct Tax Code Bill which was presented in the Parliament this year, the tax exemption limit is 2 lakhs. But DTC will come in 2012 April only.
More on Direct Tax Code
FAQs on DTC
Discussion on Direct Tax Code
Cabinet Approves Direct Tax Code
Cabinet Clears the Direct Tax Code (DTC) Bill in Parliament.
The Cabinet at its hour-long meeting chaired by the Prime Minister discussed at length various provisions of the DTC Bill, which will seek to bring about radical reforms and simplification in direct tax structure including the Income Tax rates and exemptions.
Features:* It will be effective From April 1, 2011.
* It will Replace the old Income Tax Act which is 50 years old.
* Employees have to pay less direct tax in each slab of income.
* Limit of exemption for salaries employees : 2 Lakhs.
* Limit of exemption for senior citizens: 2.5 Lakhs.
* Tax for income between Rs. 2 lakhs - Rs. 5 lakhs: 10%
* Tax for income between Rs. 5 lakhs - Rs. 10 lakhs: 20%
* Tax for income over Rs.10 Lakhs 30 %.
* Corporate Tax 30 %.
Inspite of NPS being launched for the last 2 years, it has not been able to garner attention of the investor fraternity. Hence to promote it, the Government of India has announced that it will add Rs 1000 co-contribution every year for the next three years for everyone who joins the New Pension Scheme. Those who invest Rs 1,000-12,000 per annum between April 1, 2010 and March 31, 2011, will get the additional fund allocation from Rs 100 crore set aside for this scheme. Thus, any NPS subscriber will end up getting Rs 3,000 free from the government.
The revised DTC which will introduce several changes if implemented has brought NPS under the tax exempt net. This new change will make NPS an attractive investment opportunity. The government has proposed EEE (exempt-exempt-exempt) method of taxation for NPS - exemption at all the three stages of deposit, appreciation and withdrawal. Earlier, the withdrawals from the NPS were taxed. This brings it at par with the other long term investment avenues. Outlined is a brief snapshot of the product and also the impact of the change announced by the recently revised DTC.
Inspite of NPS being launched for the last 2 years, it has not been able to garner attention of the investor fraternity. Hence to promote it, the Government of India has announced that it will add Rs 1000 co-contribution every year for the next three years for everyone who joins the New Pension Scheme. Those who invest Rs 1,000-12,000 per annum between April 1, 2010 and March 31, 2011, will get the additional fund allocation from Rs 100 crore set aside for this scheme. Thus, any NPS subscriber will end up getting Rs 3,000 free from the government.
Charges paid for starting NPS
NPS has the lowest administrative charges and fund management charges. The fund management charges are capped at 0.0009% and custodian charges in the range of 0.0075% to 0.05%. To put this figure in perspective, pension fund managers (PFMs) will charge Rs 9 as fund management fee under NPS for managing Rs 10 lakh
However, there are other costs involved like the Cost of Opening an Account (Rs.50), Annual Maintenance Charge (Rs.350) and a Per Transaction Charge of Rs.10. Further one has to pay Rs 40 for registration and Rs 20 per transaction at points of presence. The charges would come down once number of accounts opened increases. This is still cheaper than charges of mutual find and ULIPS.
source: bankbazaar.com
Under the direct taxes code (DTC) regime, what happens if a salaried employee withdraws money from his/her approved Provident Fund (PF)/Superannuation fund (SF) /Gratuity and other retrial benefit schemes? How will the DTC affect pension plans?
In the initial draft of DTC, the government has proposed to move to the exempt-exempt-tax (EET) basis of taxation for long-term saving schemes. That is, exemption granted at the time of contribution (making an investment) and accrual on such investments. But at the time of withdrawal, such accumulations were proposed to be taxed. Under the revised discussion paper on DTC (RDP), released recently by the Government, it has been proposed to restore the exempt-exempt-exempt (EEE) basis of taxation for Provident Funds (Government, Recognised or Public), approved pension schemes, pure life insurance products and annuity schemes. Accordingly, the withdrawal from approved PF/SF may continue to be not taxable at the time of withdrawal.
Further, the retirement benefits have also been proposed to be exempted from tax subject to limits. Benefits such as gratuity, leave encashment, commutation of pension (linked to gratuity), would be exempt subject to the limits to be prescribed.
Currently an employer's contribution to provident fund/ approved superannuation fund (up to Rs 100,000) is exempt. Would these exemptions continue in DTC regime?
The RDP has proposed to exclude the employer’s contribution to PF and approved SF from the definition of the salary up to a certain limit. Accordingly, such contributions may not be taxable subject to the limits to be prescribed.
Would I be able to get the benefits of house rent allowance (HRA), medical reimbursement, leave travel assistance, etc. under the DTC regime?
The deduction of HRA and leave travel assistance would not be available. However the medical expenses reimbursement (which is presently not taxable upto Rs 15,000) is proposed to be reinstated with higher monetary limits.
What happens to the policyholders who have invested in unit-linked insurance plans (Ulip)? Whether the proceeds receivable on maturity is taxable under the proposed DTC regime?
The RDP has proposed to restore the EEE basis of taxation for saving schemes. As mentioned in answer to question no 1, such benefits have been extended to pure insurance products or annuity on schemes also. While the debate whether Ulip is an investment product or insurance product is still on, but there does not seem to be clarity in the RDP whether Ulip will enjoy the benefit of EEE basis of taxation or not. A clarity on this aspect in the final print of DTC would be useful keeping in view the fact that Ulip is a popular product. It has been proposed in the RDP that investments made in instruments before the commencement of the DTC, which currently enjoy the benefit of EEE basis of taxation would continue to get the same until their full term. Accordingly, investments made in Ulip schemes before April 01, 2011( when DTC is expected to be implemented), the benefit of EEE basis of taxation should be made available to that extent.
What is the tax implication of interest on housing loan paid/payable during the financial year 2011-12 (assuming that the DTC will come in force)?
The RDP has restored the deduction of Rs. 1.5 lakh on account of interest paid/ payable in relation to one not let out house property. Accordingly, the tax payer would be able to claim the above deduction.
Is there any exemption for senior citizens available under the DTC? Whether tax benefit available on reverse mortgage transactions would continue under the DTC regime?
Under the existing tax laws, a senior citizen pays tax only whom his/her taxable income exceeds Rs 240,000. The said limit has not been enhanced either in the DTC or the RDP. Further, the existing provisions of the Income Tax Act, 1961, exempts the reverse mortgage transaction from the definition of transfer and hence these transactions do not attract any tax. However, similar provisions are not there in the DTC and even the RDP has not indicated extension of any such benefit. One may hope that there would be some addressal on the reverse mortgage transactions when DTC is rolled out as these schemes are a mechanism to avoid financial hardship at old age.
source:business-standad. Written by Kuldip Nayyar.
The draft Direct Taxes Code (DTC) along with a Discussion Paper was released in August, 2009 for public comments. Since then, a number of valuable inputs on the proposals outlined in these documents have been received from a large number of organisations and individuals.
These inputs have been examined and the major issues on which various stakeholders have given their views have been identified. This Revised Discussion Paper addresses these major issues. There are a number of other issues which have been raised in the public feedback, which, though not part of this Discussion Paper, will be considered while finalising the Bill for introduction in Parliament. The issues which this Revised Discussion Paper addresses are:
i. Minimum Alternate Tax (MAT) - Gross assets vis-a-vis book profit.
ii. Tax treatment of savings - Exempt Exempt Tax (EET) vis-a-vis Exempt Exempt Exempt (EEE) basis.
iii. Taxation of income from employment - Retirement benefits and perquisites.
iv. Taxation of income from house property.
v. Taxation of capital gains
vi. Taxation of non-profit organisations
vii. Special Economic Zones – Taxation of existing units
viii. Concept of Residence in the case of a company incorporated outside India.
ix. Double Taxation Avoidance Agreement (DTAA) vis-a-vis domestic law.
x. Wealth Tax.
xi. General Anti Avoidance Rule (GAAR).
Paragraph 1 in each Chapter describes the proposals in the DTC and Discussion Paper, paragraph 2 highlights the issues and concerns raised and paragraph 3 details the revised proposals in response to these concerns. The New Pension Scheme (NPS), which has failed to take off despite its near-zero expense structure, is set to get a new lease of life.
If the revised discussion paper on the Direct Taxes Code (DTC) is passed into law, NPS, which was thrown open to all Indian citizens on May 1, 2009, could turn out to be the best way to build a retirement kitty.
DTC seeks to replace the archaic Income Tax Act of 1961.
The discussion paper places NPS in the exempt-exempt-exempt (EEE) category, meaning investments in the scheme, returns earned during the tenure and the amount received at maturity will all be tax exempt.
Currently, investments into NPS come under the exempt-exempt-tax (EET) category, wherein the amount received at maturity is taxable. This has worked against the scheme, considering the other modes of saving tax are in the EEE category.
This could change and soon. “It is proposed to provide the EEE method of taxation for Government Provident Fund, Public Provident Fund (PPF) and Recognised Provident Funds and the NPS administered by Pension Fund Regulatory and Development Authority. Approved pure life insurance products and annuity schemes will also be subject to EEE method of tax treatment,” the discussion paper stated.
“As per the revised discussion paper New Pension Scheme, Public Provident Fund or Superannuation Fund will not be taxed during contribution, accretion and withdrawal,” said Parizad Sirwalla, partner - tax, B S R and Co. “Under NPS there was some ambiguity which has now been clarified,” she added.
NPS is a tool where someone between 18 and 55 years can invest a minimum of Rs 500 four times a year or Rs 6,000 annually. The permanent retirement account number needed for NPS investment can be opened at various centres including select bank branches and even India Post offices.
Also, NPS uses the equity route partially to build a retirement kitty, which the Employees Provident Fund (EPF) and PPF do not. Other products that help one build savings using the equity route, such as tax-saving mutual funds and unit-linked insurance plans, have now been put under EET and hence the tax works out to be in favour of NPS.
The cherry on the pie is the additional benefit NPS subscribers get if they invest in this financial year, as announced in the Budget in February 2010. “To encourage the people from the unorganised sector (non-government employees) to voluntarily save for their retirement and to lower the cost of operations of the NPS for such subscribers, government will contribute Rs 1,000 per year to each NPS account opened in the year 2010-11,” finance minister Pranab Mukherjee had said in his Budget speech.
This initiative is called “Swavalamban” and all those who start investing in NPS this year and park Rs 1,000-12,000 per annum between April 1, 2010 and March 31, 2011, will get the additional fund allocation from Rs 100 crore set aside for this scheme. Even though NPS is expected to move onto the EEE regime only in April, 2011, it might be good to start to investing in it to get the Rs 1,000 per year the government plans to invest in every NPS account for three years.
source:dnaindia
The revised draft of Direct Tax Code (DTC) has brought some good news for the govt employees. It proposes tax exemption on retirement benefits, the Public Provident Fund (PPF), the Government Provident Fund (GPF), the Recognised Provident Funds and the Employees Provident Fund and addresses important issues such as Minimum Alternate Tax (MAT).
The government intends to introduced the DTC in the monsoon session of the Parliament to replace the current Income-Tax Act. In the earlier draft of the DTC released last August the finance ministry had proposed to tax all the tax saving instruments at the time of withdrawal. However, the limit of tax saving was increased to Rs 3 lakh in a financial year.The government plans to implement the Direct Taxes Code (DTC) from 2011-12 after addressing all concerns relating to controversial proposals like taxation of retirement benefits, weeding out incentives for housing sector and changes in the Minimum Alternate Tax (MAT).
The proposals in the Code are only “illustrative” and are open for discussion and there is no need to think that these”have been decided,” Finance Minister Mr. Pranab Mukherjee said.