Salaried taxpayers may have less kitty for holidays from April 2012, with the government proposing to scrap tax incentives on leave travel allowance in the new direct tax regime DTC.
The Direct Taxes Code bill, which was tabled in the Lok Sabha on Monday, seeks to do away with leave travel concession from its list of exemption.
"LTC was one of the popular elements given to employees by the government. Taxpayers will not be too happy, as already there aren't many benefits for them in DTC. It may also be a dampener for the travel industry, which may see less people willing to travel and holiday," Ernst & Young Tax Partner Vishal Malhotra said.
DTC aims to replace the archaic Income Tax Act and other direct taxes legislation like Wealth Tax Act, from April 1, 2012.
It proposes, among other things, to remove a plethora of exemptions and effect changes in income tax slabs.
While DTC proposes to retain exemptions such as house rent allowance and leave encashment, it seeks to remove LTC from the list.
The exemption limit for medical reimbursements, however, is sought to be increased.
The Government has also proposed only a marginal raise in income tax exemption for investment in approved funds, insurance schemes and tuition fee to Rs 1,50,000 in a year, from Rs 1,20,000 currently.
It seeks to provide income tax exemption on investment of up to Rs 1,00,000 in approved funds.
Besides, it proposes to provide exemption of up to Rs 50,000 on investments made in insurance, including health cover, and tuition fee.
Currently, investment up to Rs 1,00,000 in approved funds and insurance schemes is exempt from income tax.
For this fiscal, investment up to Rs 20,000 in infrastructure bonds have also been given this benefit.
The exemptions proposed in the DTC bill are much lower than Rs 3,00,000 suggested in the first draft.
This is so because the bill proposes to retain Income Tax exemption on interest up to Rs 1,50,000 a year paid on housing loan, tax experts said.
The first draft was silent on exemption for interest paid on housing loans.
However, after adverse feedback from various quarter, the second draft proposed to retain this exemption,which is also incorporated in the bill.
The exemption limit for imposing wealth tax to Rs 1 crore from Rs 15 lakh (Rs 1.5 million)at present, a move that will help a lot of taxpayers avoid the levy.
The Rs 1 crore (Rs 10 million) limit proposed in the Direct Taxes Code Bill, however, is much less that the exemption of Rs 50 crore (Rs 5 million)proposed in the original draft.
The DTC proposes to levy wealth tax at the rate of 1per cent. Broadly, net wealth refers to taxable wealth, which means the excess of assets over debts. The tax is levied only on specified assets under the Act and not on all assets.
According the Direct Taxes Code Bill, the government has proposed to replace the current Wealth Tax Act, 1957, with a new provision which would expand the taxpayer ambit to every assessee with net wealth over Rs 1 crore, except non-profitorganisations.
The Wealth Tax Act, 1957,only listed individuals, Hindu Undivided Family and companies for the purpose of computation of tax liability.
"Thiswould benefit the small players, as the increase in exemption slab would keep a lot of them away from the tax liability," Deloitte Partner Sunil Shah said.
TheDTC also proposes to increase the scope of assets liable for wealth tax calculation. Under the current Act, the assets which come for calculation are jewellery, urban land, buildings and automotives.
TheDTC proposes to expand the taxable assets to include deposits in banks located outside India, interest in foreign trusts and shares held in a controlled foreign company.
It would also include cash-in-hand in excess of Rs 2,00,000 in case of individuals and HUF, watches with a value in excess of Rs 50,000and also archaeological collections, or any other works of art.
Taxexperts said while the DTC would benefit small taxpayers, the scope of assets for calculation of wealth tax has increased, which will lead to more individuals and companies coming under the purview of tax.
Under the current method of calculation, cash-in-hand in excess of Rs 50,000in case of an individual and HUF and yachts, boats and aircraft used by a taxpayer for personal purposes are considered for calculation of net wealth.