Make your current tax plan Direct Tax Code-ready - The Economic Times

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Tue, Dec 13, 2011 | Updated 05.59AM IST

13 DEC, 2011, 05.33AM IST, PREETI KULKARNI,ET BUREAU

Make your current tax plan Direct Tax Code-ready

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For many salaried tax-payers, December 31 is not just the much-awaited New Year's eve. It has another significance: companies to submit their investment declaration for the financial year to help them save tax. This year, tax implementation of the Direct Tax Code from April 2012.

After all, its applicability is not restricted to investments made only after April 1 next year, unless the government issues a cla however, that the code is yet to take the shape of a formal legislation. It may see see changes before it becomes a law. Nevertheless, it wouldn't hurt to factor in the possible impact DTC may have on tax-saving investments done in this some popular tax-saving avenues: Home Loan Repayment

At present, home loan repayment is eligible for deductions under sections 80C and 24. Under Section 80C, principal repaym deductions. Section 24 offers tax benefit on interest of up to Rs 1.5 lakh paid on the loan. "DTC provisions will hurt persons servicing principal amount will no longer feature as a tax-saving tool, although, interestingly, deductions on the interest paid will director, Ernst & Young.

If the tax relief on the principal repaid is removed, "the individual may consider diversifying his investments through other taxsa executive director, Tax, KPMG. "However, before making any investment decision, the individual should evaluate his persona impact." Equity-Linked Saving Scheme

Equity-linked Saving Scheme, or ELSS, is a tax-saving mutual fund that finds favour with most financial planners as it offe nominal exit barriers. Equities are known to have the potential to offer higher returns than other asset classes.

Investments in ELSS funds are locked in for only three years, unlike with other tax-saving avenues such as withdrawals before five and 15 years, respectively, come at the cost of some benefits. Also, dividends and redemption proceeds

The DTC, however, seeks to deprive ELSS of its place in the tax-saving basket. But, this financial year, you can avail of de investments, since it does not entail recurring payments like with insurance premiums.

"Once your overall asset allocation strategy has been created, it would really not matter whether your equity allocation is in pu funds," says Prerana Salaskar-Apte, chartered accountant and certified financial planner with The Tipping Point. raised now. Hence, it makes more sense to rebalance your debt-equity allocation (for tax-savings) to PPF, given the attractive ri

http://economictimes.indiatimes.com/articleshow/11089165.cms?prtpage=1

13/12/2011

Make your current tax plan Direct Tax Code-ready - The Economic Times

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Insurance

Some of the key changes to the current tax-saving instruments envisaged under DTC relate to the insurance space. premium, unlike in the current scenario, will be clubbed together. If the DTC is implemented in its existing form, total savings And, of this, deduction on life as well as health insurance premium and children's tuition fees will be restricted to Rs 50,000 per f

Under the current laws, life insurance premium qualifies for deduction under 80C, subject to the overall cap, while eligible for tax benefits under section 80D. Further, if you pay your parents' health premium, too, you can get an additional d parents are senior citizens).

Life Insurance: Under DTC, Ulips may lose their lustre as a tax-saving instrument. Not only will the amount eligible for tax reb you will not be eligible for any deduction if the annual premium exceeds 5% of the policy's sum assured. In other words, for tax 20 times the annual premium. If your policy does not meet this requirement in any of the policy years, then the maturity proceeds will be taxed. T are received upon completion of the original period of contract of the insurance.

http://economictimes.indiatimes.com/articleshow/11089165.cms?prtpage=1

13/12/2011

Make your current tax plan Direct Tax Code-ready - The Economic Times

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Worse, the DTC's provisions will apply to all policies, regardless of whether they were bought before or after the code came in the current version of the DTC to protect the existing policies," says Shah of E&Y. So, if you intend to buy an investment-cum-insurance policy this year, exercise caution. "First, calculate the amoun Though tax-planning also needs to be considered, go shopping for the right plan only after you have realised the a your family deserves a higher priority than saving tax," says Salaskar-Apte of The Tipping Point.

Most pure term policies available today already satisfy the proposed DTC's condition regarding the premium to the sum assu amounts will not exceed the reduced cap on the amount that will be eligible for tax benefits. "For a 35-year-old individual looking for a 25-year policy and a Rs 50,00,000 cover, the annual premium would work out the DTC will not make any difference," says Salaskar-Apte. Health Insurance: If you buy a term plan, chances are your annual life premium may not exceed the Rs 50,000 c DTC. This will leave ample scope for you to fully utilise the total limit by adding a health policy to your portfolio planning besides covering your health. Leave Travel Allowance

An individual is allowed to claim exemption on the leave travel allowance, or LTA, twice in a block of four calendar to December 2013). DTC, however, threatens to play spoilsport here. "The exemption for leave travel concessions (LTC) is not e

Hence, an individual entitled to it may consider availing of the concession before the DTC is implemented and avoid carrying o of KPMG. If you have not claimed it already, it is best to do so this year itself.

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13/12/2011