Impact of DTC on common man

The Finance Minister while announcing the budget recently said that the implementation of the Direct Tax Code (DTC) was likely to be passed by the Parliament next financial year on April 1, 2012 after getting the Standing Committee report.

This has been in the offing for quite some time and is expected to make taxation simpler. The wait continues till next year.

The DTC intends to reform the tax regime significantly and make tax laws easier. Let's study impact of DTC on individuals.

Impact on income tax

DTC - Tax (For 2012 - 2013)		Tax (2011 - 2012)
Income	Tax rate	Income	Tax rate
Up to Rs 2,00,000	Nil	Up to Rs 1,80,000	Nil
Between 2,00,000 to 5,00,000	10%	Between 1,80,000 to 5,00,000	10%
Between 5,00,000 to 10,00,000	20%	Between 5,00,000 to 8,00,000	20%
More than 10,00,000	30%	More than 8,00,000	30%

The impact on tax liability will be in favour of tax payers. Let's look at the DTC and current tax slabs.

Based on these rates, here is the impact of DTC on your tax liability.

Taxable Income	Tax Liability (2011-2012)	DTC - Tax Liability (2012-2013)
1,80,000	0	0
2,00,000	2000	0
4,00,000	22000	20000
6,00,000	52000	50000
8,00,000	92000	90000
12,00,000	212000	190000

Impact on Deduction

The DTC intends to do away with market-linked financial instruments such as ELSS and ULIP. These are high returns instruments. Though individual taxpayers used it for speculative purpose and lost money, there were many who used ELSS and ULIP as long term investment to build wealth. Despite the good intention behind this move, taking ELSS out will be a huge blow to individual taxpayers.

The DTC will also take out most of the insurance products which pay the fund value at the end of maturity except when the individual's nominees receives after death or policies which have assured returns which is 20 times the annual premium.

The investors can still invest in ELSS and claim the benefits for this year.

Impact on Capital Gain

The short term capital gain on stocks will be charged as per the tax slab individual falls into. However, the taxable amount will be only the 50% of the gain. The good part is that you have to pay taxes on only half of the short term gain but the bad part is that you have to pay as per your tax rate which could be as high as 30%. The long term gain is exempt from any tax liability. The good part is that

The short term capital gain on property will be charged as per your tax slab. Long term capital gain will be indexed and then added to your income and taxed as per the tax slab you fall into. This is good for people falling in low tax rate category but is not beneficial for people in the highest tax bracket.