Impact of Direct Tax Code on investment strategy

The world of investments is about the future. It is about planning for tax-adjusted returns for future years. As investors do their math of investments today, they have to keep in mind that the income tax map is set for a substantial change in April 2012. This change will come if the new Direct Tax Code Law is passed by the Parliament in this winter session.

The new tax code will have an impact on most investment avenues such as insurance policies, home loans, PPF, mutual funds and stocks. Many tax exemptions in existence today will no longer be valid as the government slowly migrates from the exempt-exemptexempt (EEE) regime to a simpler and more straightforward tax structure.

The Direct Tax Code (DTC) is nothing but a step in that direction. Investors have to now get used to having fewer exemptions and plan their investments from a returns perspective rather than a tax perspective.

Impact on mutual funds

Equity-linked saving schemes (ELSS): The main reason why investors invest in ELSS funds is to save tax. At the end of every financial year there is a rush to subscribe to ELSS funds. The major change that will come under the new DTC is that tax exemptions for ELSS funds will no longer be valid. They are treated like any other equity mutual fund for tax purposes.

Tax exemption on postal savings account interest capped at Rs 3,500 :

NEW DELHI: You will now have to pay tax on interest earned beyond Rs 3,500 on a postal savings bank account. In a recent decision, the Central Board of Direct Taxes , the apex direct taxes body, withdrew the blanket exemption enjoyed hitherto by the scheme.

The exemption will be available only on interest earned up to Rs 3,500 in case of individual accounts and Rs 7,000 in case of joint accounts from the current fiscal year itself. Experts say some of the concessions granted earlier had to be reviewed to see if they were in line with the current economic reality or had outlived their utility.

How to fill Income Tax Return Form 1 (ITR1)-Part2

How to fill Income Tax Return Form 1 (ITR1)-Part1

Six smart things you should know about capital gains from online trading

1) Transactions in equity shares using the Internet trading platform are subject to taxation and have to be included in the income tax returns.

2) All gains from the sale of shares within one year of the date of purchase are subject to capital gains tax at 15%, along with the applicable surcharge and cess.

3) All losses from the sale of shares within one year of the date of purchase are eligible to be set off against capital gains for a period of eight years.

4) If you sell shares after a holding period of more than a year, the gains are exempt from tax. So, the losses from such a sale are also ineligible to be set off against gains.

5) The gains or losses have to be computed on the first in, first out principle. This means that the shares you buy first will have to be sold first.

6) If the income from such transactions exceeds Rs 20 lakh per year, the accounts have to be audited and treated as business income. 
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Source : ET