DTC GETS A BACKDOOR ENTRYThe basic threshold has been increased to.Rs.2
lakh for all individuals below 60 years. This eliminates the
preferential slab to women and also set the peak rate of 30% over income
exceeding.Rs.10 lakh. These slabs are in sync with DTC proposals though
the parliamentary standing committee (PSC) had proposed more generous
slabs.
LIFE INSURANCE PREMIUM
DTC envisaged that deduction towards premium for life insurance policies be limited to annual premium of 5% of the sum assured. PSC proposed moderating this limit to 10% and recommended grandfathering of policies. In line with the PSC recommendation, Budget 2012 has set this limit to 10% from the existing 20% and applied it only to policies issued after April 1, 2012.
AGE FOR SENIOR CITIZENS
PSC recommended dropping the age of senior citizens from 65 to 60 years. This was partially implemented in Budget 2011 by reducing the age for applying tax slabs. Budget 2012, further aligned the age limit to 60 for claiming specified deductions like medical premiums.
MANDATORY TAX AUDIT
In line with DTC, the Budget has proposed raising the turnover threshold for mandatory tax audit to.Rs.1 crore for businessmen and.Rs.25 lakh for professionals, as against the existing limits of.Rs.60 lakh and.Rs.15 lakh. Though these amendments are a move towards the implementation of DTC, the fate of many other proposals is yet uncertain:
RESIDENTIAL STATUS
DTC proposed a change in the residency definition which has significant impact on the Non Resident Indian (NRI)/ Persons of Indian Origin (PIO) visiting India. It proposed to reduce the threshold stay in India for triggering residency to 60 days instead of 182 days. However, it is notable that PSC recommended to restore the 182 day rule for NRIs/PIOs subject to conditions. Also, DTC recognises a Resident and a Non-Resident (NR) and the prevailing concept of a Not Ordinary Resident (NOR) has been removed. However, like the current law, DTC does stipulate a threshold presence of 729 days or more in the preceding seven years for taxing overseas income in India.
WEALTH TAX
DTC proposed wealth tax limits at. 1 crore as against the existing. 30 lakh and various new assets like work of art, bank deposits outside India, among others, have been added. Recommendation of PSC is to increase threshold to. 5 crore with slab tax rates. While effectively, NRIs/PIOs may be tax neutral as 729 days rule has been retained, they are likely to be hit by wealth tax as the DTC does not propose a similar relief for stay of less than 730 days in the past seven years. Hence, the overseas specified assets of NRIs/PIOs who become residents (mainly on account of shorter time frame of 60 days and cumulative look back of 365 days in previous four years) may be subject to wealth tax in India on certain overseas assets.
CAPITAL GAINS
While long term capital gains (LTCG) on transfer of equity shares/ equity-oriented mutual funds (which are STT paid) continue to remain exempt under DTC, short term capital gains (STCG) (taxable @ 15. 45% now) are eligible for 50% deduction and thereafter taxed at normal slab rates applicable, leading to an effective tax range of 5-15 %. Also, DTC proposes taxation of capital gains on sale of other assets at the normal slab rates vis--vis beneficial rate of 20. 6% (in case of LTCG). However, the indexation benefit and rollover relief would continue for LTCG if these other assets are held for more than 12 months from the end of the FY of acquisition. – www.economictimes.indiatimes.com
LIFE INSURANCE PREMIUM
DTC envisaged that deduction towards premium for life insurance policies be limited to annual premium of 5% of the sum assured. PSC proposed moderating this limit to 10% and recommended grandfathering of policies. In line with the PSC recommendation, Budget 2012 has set this limit to 10% from the existing 20% and applied it only to policies issued after April 1, 2012.
AGE FOR SENIOR CITIZENS
PSC recommended dropping the age of senior citizens from 65 to 60 years. This was partially implemented in Budget 2011 by reducing the age for applying tax slabs. Budget 2012, further aligned the age limit to 60 for claiming specified deductions like medical premiums.
MANDATORY TAX AUDIT
In line with DTC, the Budget has proposed raising the turnover threshold for mandatory tax audit to.Rs.1 crore for businessmen and.Rs.25 lakh for professionals, as against the existing limits of.Rs.60 lakh and.Rs.15 lakh. Though these amendments are a move towards the implementation of DTC, the fate of many other proposals is yet uncertain:
RESIDENTIAL STATUS
DTC proposed a change in the residency definition which has significant impact on the Non Resident Indian (NRI)/ Persons of Indian Origin (PIO) visiting India. It proposed to reduce the threshold stay in India for triggering residency to 60 days instead of 182 days. However, it is notable that PSC recommended to restore the 182 day rule for NRIs/PIOs subject to conditions. Also, DTC recognises a Resident and a Non-Resident (NR) and the prevailing concept of a Not Ordinary Resident (NOR) has been removed. However, like the current law, DTC does stipulate a threshold presence of 729 days or more in the preceding seven years for taxing overseas income in India.
WEALTH TAX
DTC proposed wealth tax limits at. 1 crore as against the existing. 30 lakh and various new assets like work of art, bank deposits outside India, among others, have been added. Recommendation of PSC is to increase threshold to. 5 crore with slab tax rates. While effectively, NRIs/PIOs may be tax neutral as 729 days rule has been retained, they are likely to be hit by wealth tax as the DTC does not propose a similar relief for stay of less than 730 days in the past seven years. Hence, the overseas specified assets of NRIs/PIOs who become residents (mainly on account of shorter time frame of 60 days and cumulative look back of 365 days in previous four years) may be subject to wealth tax in India on certain overseas assets.
CAPITAL GAINS
While long term capital gains (LTCG) on transfer of equity shares/ equity-oriented mutual funds (which are STT paid) continue to remain exempt under DTC, short term capital gains (STCG) (taxable @ 15. 45% now) are eligible for 50% deduction and thereafter taxed at normal slab rates applicable, leading to an effective tax range of 5-15 %. Also, DTC proposes taxation of capital gains on sale of other assets at the normal slab rates vis--vis beneficial rate of 20. 6% (in case of LTCG). However, the indexation benefit and rollover relief would continue for LTCG if these other assets are held for more than 12 months from the end of the FY of acquisition. – www.economictimes.indiatimes.com
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