The Direct Taxes Code (DTC) bill, which was tabled in the Lok Sabha yesterday, seeks to do away with leave travel concession (LTC) 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 1.5 lakh in a year, from Rs 1.2 lakh currently. It seeks to provide income tax exemption on investment of up to Rs 1 lakh 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 lakh 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 lakh suggested in the first draft. This is so because the bill proposes to retain Income Tax exemption on interest up to Rs 1.5 lakh 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