DTC AND ITS IMPACTS………………………..
Several changes will take place in regard to how to invest across various asset classes as Direct tax Code (DTC) will be affective from April 1, 2012. Therefore you need to revise your investments accordingly. The original draft of DTC differs from it s current form. But still you need to make your investments in DTC yield. The analysis below will help you.
Impact on Insurance:
Insurance will have a significant impact of DTC. A policy should offer life cover of at least 20 times the annual premium, to be eligible for tax deduction under DTC. You will not be able to receive any tax deductions on premium and even the income from policy will be taxable, if the condition mentioned is not met. At present the income received from insurance policies is free. So while hunting for tax deduction on insurance plan, make sure that you always go for a policy that offers bigger cover. But it is possible only if the duration for cover plan is of 20-25 years.
Not so good news is that tax deduction limit for life insurance will get reduced from present 1 lakh a year to 
50,000 an year. This annual limit of 50,000 will comprise the amount paid for tuition fees of children as well as medical insurance for self and parents. So an insurance policy with a large premium, around 80,000 - 1 lakh will carry maximum tax deduction of only 50,000.The DTC will also push policyholders to acquire long term view on investments. You need to think twice before deciding upon a insurance policy as premature withdrawals from ULIPs will be taxed. The fact that surrender charges have been waived off and you can withdraw money after 5 years without paying anything will not be true anymore.
50,000 an year. This annual limit of 50,000 will comprise the amount paid for tuition fees of children as well as medical insurance for self and parents. So an insurance policy with a large premium, around 80,000 - 1 lakh will carry maximum tax deduction of only 50,000.The DTC will also push policyholders to acquire long term view on investments. You need to think twice before deciding upon a insurance policy as premature withdrawals from ULIPs will be taxed. The fact that surrender charges have been waived off and you can withdraw money after 5 years without paying anything will not be true anymore.How Equities Investment will be Effected
The positive news here is the continuation of exemption on long term capital gains. So the investors here relieved as they don't have to revise their plans due to DTC and can continue with their investments as planned. On the other hand ELSS Mutual Fund scheme's tax exemption will exit and they will be treated at par with other schemes in market with no tax exemption. Investors who are in search for Mutual Funds for tax exemption should consider this factor while investing.
Definite Impact on Pension Funds:
Most of existing tax saving investment will not be eligible for deduction under the DTC. As an alternative, the focus has shifted to long term options with pension funds leading the way. An annuity is an investment that gives out a regular income to the investor. Pension plans require an investor to put at least 65 percent of corpus received on maturity in an annuity which then gives him monthly pension. Although more details are expected, DTC has planned to make annuity income exempt from taxation which makes them good tax saving instrument. The New Pension scheme is low cost pension fund which an investor can consider.
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The reimbursement of principal of your home loan will not be eligible for tax deduction under the DTC. The removal of tax on notational rent is good news. At present if you own more than one house you have to pay tax on notational rental income even if second house is lying vacant. The DTC will eliminate this anomaly and make investment in second home more tax efficient. An additional landlord friendly move is that advanced tax acknowledged from a tenant will be taxed in year it relates, not when it was received. DTC, more importantly has maintained tax benefit on the interest paid on home loan. The tax benefits decrease the effective cost of home loan thus making it reasonable for borrowers.
Prepared By: Bhaveshkumar Dasharathbhai Suthar- 8264085646
Bhaveshsuthar77@yahoo.in
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