The revised discussion paper on the Direct Taxes Code has removed some of the thorny provisions in the original draft and clarified the tax treatment of existing investments. However, it has also injected ambiguity by hinting that the tax slabs proposed by the original draft may be tweaked. The revised discussion paper states: "These proposals will reduce the tax base proposed in the DTC. The tax slabs and tax rates will, therefore, be calibrated accordingly."
The scrapping of the proposal to tax withdrawals from retirement funds (PF, PPF, etc) may be good news, but experts say there is no reason to feel elated. "This cup of joy has a flip side as the government is likely to calibrate the tax slabs and rates to compensate for the potential revenue loss on account of this change," warns Rajesh Srinivasan, partner, Deloitte. The home loan borrowers can smile because the tax deduction for interest paid has been restored. But this might be included in the overall Rs 3 lakh deduction proposed under Section 66. The lower tax for long-term capital gains seems positive, but it won't get you the indexation benefit that the DTC originally promised.
However, the modified draft clarifies how existing investments will be taxed. These will continue to be governed by the current tax regime till their full duration. This is a relief for millions of policyholders, who were fearing that the proceeds from their insurance plans would be taxed on maturity as they don’t offer a life cover of at least 20 times the annual premium.
