DIRECT TAX CODE

1. DTC removes most of the categories of exempted income. Unit Linked Insurance
Plans (ULIPs), Equity Mutual Funds (ELSS), Term deposits, NSC (National Savings
certificates), Long term infrastructures bonds, house loan principal repayment,
stamp duty and registration fees on purchase of house property will loose tax benefits.

2. Tax saving based investment limit remains 100,000 but another 50,000 has been added
just for pure life insurance (Sum insured is atleast 20 times the premium paid) , health
insurance, mediclaims policies and tuition fees of children. But the one lakh
investment can now only be done in provident fund, superannuation fund, gratuity fund
and new pension fund.

3. The tax rates and slabs have been modified. The proposed rates and slabs are as
follows:

Annual Income Tax Slab

Up-to INR 200,000 (for senior citizens 250,000) Nil
Between INR 200,000 to 500,000 10%
Between INR 500,000 to 1,000,000 20%
Above INR 1,000,000 30%

Men and women are treated same now

4. Exemption will remain same as 1.5 lakhs per year for interest on housing loan for self-
occupied property.

5. Only half of Short-term capital gains will be taxed. e.g. if you gains 50,000, add
25,000 to your taxable income.

Long term capital gains (From equities and equity mutual funds, on which STT has
been paid) are still exempted from income tax.

6. As per changes on 15th June, 2010, Tax exemption at all three stages (EEE) —savings,
accretions and withdrawals—to be allowed for provident funds (GPF, EPF and PPF),
NPS (new pension scheme administered by PFRDA), Retirement benefits (gratuity, leave
encashment, etc), pure life insurance products & annuity schemes. Earlier DTC wanted to
tax withdrawals.

7. Surcharge and education cess are abolished.

8. For incomes arising of House Property: Deductions for Rent and Maintenance
would be reduced from 30% to 20% of the Gross Rent. Also all interest paid on house
loan for a rented house is deductible from rent. Before DTC, if you own more than one
property, there was provision for taxing notional rent even if the second house was not
put to rent. But, under the Direct Tax Code 2010 , such a concept has been abolished.
9. Tax exemption on LTA (leave travel allowance) is abolished.

10. Tax exemption on Education loan to continue.

11. Corporate tax reduced from 34% to 30% including education cess and surcharge.

12. Taxation of Capital gains from property sale : For sale within one year, gain is to
be added to taxable salary.For long term gain (after one year of purchase), instead of flat
rate of 20% of gain after indexation benefit, new concept has been introduced. Now gain
after indexation will be added to taxable income and taxed at per the tax slab.
Base date for cost of acquisition has been changed to 1st April, 2000 instead of earlier 1st
April, 1981.

14. Medical reimbursement : Max limit for medical reimbursements has been increased
to 50,000 per year from current 15,000 limit.

15. Tax on dividends: Dividends will attract 5% tax.

15. Bad news for NRIs : As per the current laws, a NRI is liable to pay tax on global
income if he is in India for a period more than 182 days in a financial year. But in new
bill, this duration has been changed to just 60 days.
This is very unfair to Seafarers. To avoid any income tax, an Indian sailor employed
with a foreign ship will have to stay maximum for 60 days in India.

Tax Collection at Source

Tax Collection at Source or TCS, as the name implies, means collection of tax at source
by the seller or collector, from the buyer of the goods. As prescribed under Income Tax
Act 1961, it is mandatory on the part of the buyer to pay a predetermined value of TCS to
the seller, while purchasing a particular commodity. TCS is generally set for business or
trade in alcoholic liquor, forest produce, scarp, etc. Various lease, license and contracts
related to areas like parking lot, mines and toll plaza also falls under the umbrella of TCS
in India.

TCS is generally collected when amassed or when paid, whichever is earlier. The seller
or collector who collects the tax is required to deposit it in any of the designated branches
of the certified banks. Tax Collection at Source is implemented to curb tax evasion and
also to facilitate proper tax collection in India. The various goods which come under the
policy of TCS are listed below along with their rates.

Tax Collection at Source (TCS) Tax collection at source arises on the part of the seller of
goods. Here, tax is collected at the source of income itself. It is to be collected at source
from the buyer, by the seller at the point of sale. Such tax collection is to be made by the
seller at the time of debiting the amount payable to the buyer to the account of the buyer
or at the time of receipt of such amount from the buyer, whichever is earlier. A person
collecting tax shall furnish a certificate specifying whether tax has been collected or not,
what sum has been collected, the rate of tax applied on it and other such particulars as
may be prescribed. It shall be furnished within 10 days from the date of debit or receipt of
the amount furnished to the buyer to whose account such amount is debited or from
whom such payment is received. The taxes collected must be remitted into the income tax
department's account. Every person collecting tax shall, within such time as may be
prescribed, apply to the Assessing Officer for the allotment of a tax-collection account
number.

The following goods when sold must be subjected to tax collection at source:-

• Alcoholic liquor for human consumption (other than Indian made foreign liquor).
• Timber obtained under a forest lease.
• Timber obtained by any mode other than under a forest lease.
• Any other forest produce not being timb

Seller
The list of people for coverage under the scope of the seller for TCS is:

• The Central and State Government.

• Local authority.
• Statutory Corporation or Authority.
• Company.
• Firm.
• Co-operative society.
• Individual or Hindu undivided family (HUF) if covered under section 44AB
(mandatory Audit).

Buyer
A buyer is one who gets in any sale by way of auction, tender or any other mode,
specified goods or right to receive any such goods, but will not include

• Public sector Company.

• Central/ state Government.
• Embassy, a high commission, legation, consulate and the trade representation of a
foreign state and
• A club.
• A buyer in the retail sale of such goods purchased for personal consumption.

Tax Collection At Lower Rate

• For tax collection at lower rate, a buyer can apply to his Assessing Officer in
Form 13.
• After receiving application on Form 13, if the Assessing officer is satisfied, the
assessing officer would issue such certificate directly to seller under advice to the
buyer. The said rate is applicable for a particular seller, whose name is mentioned
in the certificate and cannot be taken as all prevailing approval for all sellers for
purchase of specified goods from anybody.
Exemption

• A buyer who purchases specified goods for manufacturing, processing or

production of goods/article or thing and not for trading, no tax would be deducted.
In such cases the buyer would declare it in Form 27C to the seller.
• The seller in turn would deliver one copy of Form 27C collected from buyer to
Chief Commissioner/Commissioner of Income tax.

Nature Of Goods Percentage/Rate Of Tax

Alcoholic Liquor 1
Timber Obtained Under Forest Lease 2.5
Timber obtained by any other mode 2.5
Tender Leaves 5
Other Forest Produce, excluding Tender leaves and Timber 2.5
Scrap 1

Tax Deduction Source (TDS)

What is TDS

TDS stands for tax deducted at sorce... it is the tax that an assessee has to pay at the time
of earning an income.. it is different from tax paid at the time or filing return since it is
paid in the previous year itself...

Nothing is as tangled and knotty as the TDS provisons. While some TDS rates are
specified in the individual section which deal with the tax treatment of the particular
stream of income, some rates are included as part of a separate schedule. To make
matters worse, these rates get tampered and modified every year. This result in so much
chaos and confusion, that sometimes those who have to apply TDS, do not have a clue
about what rate to use. Imagine the plight of tax payer.

The genasis of the problem lies in the complicated nature of the tax laws. The authorities
complain that less than 2% of our population actually pays taxes. However, simpliflying
the provisions is not viewed as a possible solution. On the other hand, in an effort to
bring more and more people into the tax net, the lawmakers simply endup complicating
the law. And the rule is simple more the complexity more the room.

TDS is final tax payable- at the time of filling his returns, the assessee pays the balance if
any or asks for refund, as the case maybe. Ergo, it behooves the Department to have a
standard uniform rate -convenient both for itself as well as the taxpayers.

The most unfortunate part is that we could have easily done away with any TDS provided
the deparrtment had good infrastructure to apprehend assessees avoiding tax only through
TDS.