A Relook At Budgeting And Planning Emis Could Be Required

The Direct Taxes Code (DTC) Bill 2010 was tabled by the Finance Minister in the Parliament on 30 August, 2010 and is proposed to come into force from April 1, 2012. The DTC has proposed significant changes in the way thatinvestment in house propertymay be considered in terms of budgeting and planning of EMIs. Some of the key changes are Take-home package Salaried individuals can take solace from the fact that tax slabs have been liberalised to some extent.
The DTC also proposes to abolish education cess, which is payable on the tax component @3 per cent. A salaried employee would be in an advantageous position depending on his applicable tax bracket. The table (right) illustrates the tax saving for Anil Seth, who incurs taxable income of R15 lakh per annum. With the rationalisation of the tax slabs, Seth would be able to save taxes of R33,120. This would increase his take-home salary that may be utilised to service an additional loan of R3 lakh on purchase or renovation of property.
Interest and repayment DTC has retained the provisions for providing a tax concession on account of interest paid on housing loan in case of a self-occupied property (subject to an upper limit of R1.5 lakh) as well as pre-construction/ acquisition period interest in five equal installments.
However, the repayment of the principal amount of the housing loan that is currently available for deduction from gross total income upto R1 lakh would not be available under DTC regime. Income from propertyThe concept of notional taxation prevalent under the Income Tax Act would be abolished. Under the current tax laws, only one house is considered selfoccupied and other houses are considered deemed to be let out and taxed accordingly. The DTC has done away with this concept.
Therefore, being an owner of more than one residential property will not invite taxation unless the taxpayer earns actual rental income from letting out of the property. At the same time, an owner of residential properties would attract liability to wealth tax @1 per cent for wealth in excess of R1 crore on the date of valuation.
Another change relates to the flat deduction of 30 per cent from the taxable value of a residential property. It would be reduced to 20 per cent.
A person thus would need to decide while investing in a house property if he wants it for self-occupation or rent it out.
Capital gains There have been some important changes around taxation of capital gains under DTC, hence it is important to take into consideration the tax implications whileselling property
DTC proposes to tax capital gains at normal rates without distinguishing the nature of asset, i.e. longterm or short-term (as per applicable slab rates mentioned in the table) as against concessional rate of 20 per cent provided under the current tax laws for a sale of a property held for more than three years (a long-term asset). Though computation of capital gains may result in certain advantage as the base date of Cost of Inflation Index will now be shifted from April 1, 1981, to April 1, 2000. As a result, the fair market value as on April 1, 2000 may be substituted for the actual cost at the option of the tax payer. This would result in an increase in cost of acquisition whileappreciation in property valuebetween April 1, 1981, and March 31, 2000, will not be taxed.
The above are personal views/interpretation of the authors. Poorva Prakash is a director and Manoj Pandey is a manager at Deloitte Haskins & Sells
Courtesy:-HT Estate 23-10-2010
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