The Direct Tax Code Bill, 2010 proposes changes that can impact investments in mutual funds. What are they? Read on and find out.
The Finance Ministry tabled the Direct Tax Code Bill, 2010 for discussion in the Parliament on August 30, 2010. The bill, if passed, will replace the existing Income Tax Act, 1961 and come into effect from April 1, 2012. It’s a step towards modernisation of direct tax laws - mainly the Income Tax Act which is now nearly 50 years old.
It has proposed exemption from income tax specified savings up to Rs 3 lakh a year as against the present Rs 1 lakh for all types of savings under 80C of the IT Act. However, the drawback is that only a few long term investments like public provident fund, employer’s provident fund, insurance premium in pension (annuity) schemes, Post Office National Savings Scheme are to be eligible for tax exemption.
A significant exclusion from this category is ELSS. This exclusion will make ELSS less attractive for investors as investment in ELSS won’t qualify for deduction under 80C. This will directly affect the inflow of assets from retail investor in ELSS schemes once the tax advantage is removed. ELSS accounts for Rs 25,658 crore of total industry AUM.
The revised draft has proposed to exempt tax on long term capital gains from equity and equity instruments. Short-term capital gains are to be taxed at the marginal rate after 50 per cent deduction. Currently short-term capital gains are taxed at a flat 15 per cent.
Key changes at a glance
What is good? What is bad? Sec 80 cc Limit enhanced to Rs. 3 lakh ELSS won’t qualify Short term capital gains tax 50% deduction No cribs here Long term capital gains tax Not taxable No cribs here
