Impact of Direct Tax Code ( DTC ) on Resident Indian & NRI Individuals

Last week the cabinet approved the Direct Tax Code bill and forwarded it to the parliament for approval. This is a good sign of the changes happening in the modern India. The Income tax act which we follow today is more than 50 years old. The objective is to widen the tax base and make the tax law much simpler & more effective.

These are some of the salient feature's of the DTC for Resident & NRI Investors.

  • Tax slabs to be changed
    • Slab 1: Upto INR 200000 the tax rate is NIL. ( Present Slab 1 is upto INR1.65 lacs @ NIL)
    • Slab 2: INR 200,001 to INR 500,000 the tax rate is 10% ( Present slab 2 is INR 1.65 to 5 @ 10%).
    • Slab 3: INR 500,001 to INR 1,000,000 the tax rate is 20% (Present Slab 3 is INR 5 to 8 @ 20%).
    • Slab 4: INR 1,000,001 and above the tax rate is 30% ( Present Slab 4 is INR 8 & above @ 30%).
            In the case of a resident individual of the age of 65 years or above, the basic exemption limit to be  INR 250,000
  • Corporate tax will come down from 33% to 30% but the Minimum Alternate Tax (MAT) will be increased to 20% from 18%.
  • STT (Securities Transaction Tax) remains the same 
  • Wealth Tax to be levied @ 1% after the basic deduction of INR 1 Cr.
  • For NRI's the income from Dividend, Interest, Income from MF, Royalty or fees for technical purpose & income from insurance all to be taxed @ 20%
  • For NRI's the income from lottery, race, gambling or betting to be @ 30%
  • Capital Gains: 
    • Short term & long term redefined. Any investment has to cross the financial year of purchase for the number of days counting to start. That means if one buys a mutual fund on June 1 2010, his investments will be short term till March 31st 2012 (Count 365 days from April 1st 2011)
    • Normal rates as it is now will apply. 
    • Indexation benefits are available for long term capital assets only.
  • Dividend Distribution Tax : 
    • Corporate DDT of 15% will remain. 
    • DDT on Equity Oriented MF will change from present NIL to @ 5%. 
    • DDT on money market & liquid fund for individuals will change from present 25% to NA.
    • Surcharge & Education cess to be removed.
    • Dividend distributed by equity mutual funds where DDT is paid will be tax free at the hands of the investor. 
    • Dividend distributed by non equity mutual funds will be taxed at the hands of the investor from present NIL to 10% if dividend above INR 5000 in the year. 
  • TDS on NRI Capital Gains: 
    • TDS on LTCG on equity funds remains the same @0%
    • TDS on other capital gain will be @ 30% which seems to be high. 
    • No surcharge & education cess. 
  • Sec 80 C: ELSS (Equity Linked Savings Scheme) will not be a part of the Sec 80 C benefit. 

This is not an exhaustive list but I have tried to cover the most important ones which can effect our investing decision.  To understand the full report you can view the discussion paper on the DTC at the Finance Ministry website Link. 

Hope this will help in your thinking. Regards


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