Direct Tax Code – Exemptions and Deductions available to taxpayers under the New Law

  As Direct Tax Code (DTC) is being proposed to be introduced from next year, taxpayers are more concerned with the provisions relating to exemptions and deductions available for them, whether the benefits have been extended or reduced as it will affect their income structure. Some of the proposed changes likely to arise in the deduction and exemption available to an assessee under the DTC are mentioned below: Deduction under Section 80C

  • Under DTC, the maximum deduction limit of Rs.100000 has been reduced to Rs.50000 including mediclaim and tuition fees. Moreover the primary objective of the Government is to encourage investment in long term instruments so investment options under this section have also been reduced and only Government Provident Fund (GPF), PPF, Recognized Provided Fund (RPF), Employee Provident Fund (EPF), gratuity and pension schemes are now covered and any investment in these schemes will be eligible for deduction. Any investment in these instruments will be eligible for three – way exemption (EEE), that is, contribution, interest accrued and the maturity amount, all are exempt from tax. Thus ELSS, NSC, Fixed Deposits, senior citizen savings schemes, post-office deposits, etc., will attract tax from April 2012 and onwards. The DTC has proposed to make annuity income tax exempt from taxation, which makes them a good tax saving investment.
  • Currently premium paid on LIC taken either in own name or in the name of spouse, children was exempted provided the premium paid in any year is less than 20% of the sum assured. Under the DTC regime the annual premium paid will be eligible for tax deduction only if the policy gives a life cover of at least 20 times the annual premium paid. So one should buy a policy which offers a high cover and if your investment is not only for tax saving then you can opt for any policy as per your specification.
  • No deduction for repayment of Housing loan will be available under the new tax regime.

Deduction under Section 80D Presently a deduction of Rs.15000 is allowed for self, spouse and children and an additional deduction of Rs.15000 is allowed for parents. The additional deduction is increased to Rs.20000 in case the parents are senior citizen. Under DTC the overall deduction limit will be Rs.50000 for self, spouse, children and parents. Thus it can be observed that taxpayers have to change their investment strategies as the changes proposed will impact their choice of tax-saving instruments. Further changes are still on the proposed stage and no such notification has been issued so far. ensures to keep its users updated with the latest amendments, notifications and circulars issued by the department. provides complete tax planning service so that you can save maximum taxes on your earned income. This would help you in formulating the investment plan which will not only lower your tax liability but will also cater your long term investment security plan objective.

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