Direct Tax code bill 2010-2011


The Finance minister proposed new direct tax code in the parliament in FY 2010.It will be effective from 1st April 2011.

Theme of the direct tax code bill:
1) Less investment instruments so less confusion for tax payers to invest and get tax exemptions.
2) Invest in long term investment instruments to get tax exemptions.
3) Opt for term insurance for higher converge for dependants (More details to follow).
4) Large limit for medical expenses.
5) Emphasis on long term investment by no long term capital gain tax.

Highlights of direct tax code bill for individual:
Tax Exemptions for Individual Salaried People - Rs 2 lakh
Tax Exemption for Woman - Rs 2 lakh
Tax Exemption for Senior citizens - Rs 2.5 lakh

Tax Slab
Income between Rs 2 lakh - Rs 5 lakh = 10%
Income between Rs 5 lakh - Rs 10 lakh = 20%
Income above Rs 10 lakh = 30%

Income tax exemptions with EEE (Exempt-Exempt-Exempt)
Total Exempted income = 3 Lakh
   A = Total of Rs 1 Lakh
         Provident Fund (PPF)
         Pure Insurance product
         New Pension Scheme (NPS)
         Government Provident Fund (GPF),
         Recognised Provident Funds (RPF)

   B= Total of Rs 50000
         Life Insurance premium payment
         Health insurance premium payment
         Tuition fees
  
   C = Total of Rs 1.5 Lakh
         Interest amount of housing loans

HRA and Medical bill reimbursements:
HRA  exemption will be continue with minor modification
Medical bills reimbursement limit is increased to Rs 50000 from Rs 15000

Income tax Exemptions withdrawn on
ULIP (Unit lined insurance product)
ELSS MF (Equity linked saving scheme)
NSC (National saving certificate)
Home loan principal amount
Leave travel allowances

But the investment made before 31st MAR 2011 will remain EEE.
Overall, I feel this is balanced direct tax code with few pros and cons.The withdrawal of ELSS and home loan principal amount from tax saving instruments is not welcome change.

Again this is no final direct tax code for all the future years and The finance ministry will keep review and update as and when it’s required.Hope for the best.