Bangalore: Several changes will take place in regard to how to invest across various asset classes as Direct tax Code (DTC) will be affective from April 1, 2012. Therefore you need to revise your investments accordingly. The original draft of DTC differs from it s current form. But still you need to make your investments in DTC yield. The analysis below will help you.

Impact on Insurance

Insurance will have a significant impact of DTC. A policy should offer life cover of at least 20 times the annual premium, to be eligible for tax deduction under DTC. You will not be able to receive any tax deductions on premium and even the income from policy will be taxable, if the condition mentioned is not met. At present the income received from insurance policies is free. So while hunting for tax deduction on insurance plan, make sure that you always go for a policy that offers bigger cover. But it is possible only if the duration for cover plan is of 20-25 years.

Not so good news is that tax deduction limit for life insurance will get reduced from present 1 lakh a year to 50,000 an year. This annual limit of 50,000 will comprise the amount paid for tuition fees of children as well as medical insurance for self and parents. So an insurance policy with a large premium, around 80,000 - 1 lakh will carry maximum tax deduction of only 50,000.

The DTC will also push policyholders to acquire long term view on investments. You need to think twice before deciding upon a insurance policy as premature withdrawals from ULIPs will be taxed. The fact that surrender charges have been waived off and you can withdraw money after 5 years without paying anything will not be true anymore.