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INTRODUCTION
1.0 INTRODUCTION The provisions of income tax Act are contained in the Income tax Act, 1961 which extends to whole of India and became effective from 1-4-1962. The Income tax Act contains provisions for determination of taxable income, determination of tax liability, procedure for assessment, appeals, penalties and prosecutions. It also lays down the powers and duties of various Income Tax authorities. Since Income tax Act, 1961 is a revenue law, there are bound to be amendments from time to time in this law. Therefore, the Income tax Act has undergone innumerable changes from time it was originally enacted. These amendments are generally brought in annually along with the Union Budget. Besides these amendments, whenever it is found necessary, the Government introduces amendments in the form of various Amendment Act and Ordinances. Every year Budget is presented before the Parliament by Finance Minister. One of the most important components of the Budget is the Finance Bill, which declares the financial proposals of the Central Government for the next financial year. The bill contains various amendments which are sought to be made in the areas of direct and indirect taxes levied by the central government. The Finance Bill also mentions the rates of income-tax and other taxes which are given in the First Schedule attached to such Finance Bill. When the Finance Bill is approved by both the Houses of Parliament and receives the assent of the President, it becomes the Finance Act. The provisions of such Finance Act are thereafter incorporated in the Income tax Act. The total Income of the assessee is taxable at the following two rates: 1. Normal rates, which are given in the Finance Act, every year. 2. Special rates which are given in the Income-tax Act itself e.g. long- term capital gain is taxable @ 10%/20%, short term capital gain referred to in section 111A is taxable @ 15% and income from lotteries, crossword puzzles, etc is taxable @ 30% for assessment year 2011-12. Every person, whose total income of the previous year exceeds the maximum amount which is not chargeable to income tax, is as assessee and chargeable to income tax in the assessment year at the rate or rates prescribed in the Finance Act for that relevant assessment year. However, his total income shall be determined on the basis of his residential status in India. In other words, income tax is levied in India in the following manner:

1. Income earned by every person is chargeable to income- tax if it exceeds the maximum amount which is not chargeable to tax i.e. it exceeds the maximum exemption limit. 2. It is charged on the total income of the previous year but is taxable in the next following assessment year at the rates applicable to such assessment yea. However, there are certain exceptions to this rule. 3. Income tax is charged at two rates, viz. Normal rates and special rates. Normal rates are fixed by the annual Finance Act but special rates are given in the Income tax Act. 4. Tax is charged on the total income computed in accordance with the provisions the Act. 5. Total income of a person is determined on the basis of his residential status in India. The Government has been attaching great importance to preventing and alleviating poverty by implementing certain fiscal measures. Such measures include applying progressive income tax rates and increasing public spending on various social and community services. For low income households, their income alone cannot truly reflect their poverty situation as the expenditure pattern and living standard of low income households are affected additionally by the amount of public services and welfare support they are receiving. Thus, analyses on the income of low income households should also take into account the impact of Governments taxation policy and social transfers and other benefits. Government intervention through taxation and benefits helps bring about income redistribution. Generally, households at the upper segment of the income distribution pay more in taxes than they receive in benefits and the reverse for households at the lower segment of income distribution. Taxes and benefits therefore tend to have the effect of narrowing household income disparity. Specifically, analysis is made on the changes in household income brought about by taxation and social benefits in the areas of housing, education and health for individual deciles groups of households. The poverty situation in India is of great concern to the community. Efforts to tackle poverty must start with an understanding of its complexities. A range of public policies are in place to redistribute income and to alleviate the burden of low-income households, viz. housing, education, medical services, other social services and social benefits, with resources supported by the tax system. However, updated statistics reflecting how these policies affect the low-income households are not available.

The effects of taxation and social benefits can be ascertained by examining the post-tax household income distribution and the post-tax post-social transfer household income distribution. Figure 1 illustrates the compilation framework of post-tax household income and post-tax post-social transfer household income.
Figure 1: Concepts of Original Household Income, Post-tax Household Income and Post-tax

Post-social Transfer Household Income.

Original household income

Salaries tax and property tax, rates and Government rent

Post tax household income

Social benefits = Education + Medical + Housing benefits

Post tax post social transfer Household income

Notes:

(1) Referring to monthly domestic household income which includes income from employment, income from investment (e.g. rental income, dividend and interest) and cash transfer. (2) Covering such social benefits as education, housing and medical benefits. (3) Original household income is the total income in cash (including earnings in cash from all employments and other cash incomes) of all members in a household. It refers to income from employment, housing allowance, bonus, income from investment (e.g. dividends and interests), rental income, cash transfers from persons living outside the households. Comprehensive Social Security Allowance (CSSA) payment and social security allowances (Old Age Allowance and Disability Allowance) are also included in the original household income. (4) Post-tax post-social transfer monthly household income is derived by first deducting from the original annualised household income the salaries tax, property tax, rates and Government rent, and then adding the government benefits received. The resultant annualised household income is then divided into 12 to derive the post-tax post-social transfer monthly household income. The government benefits covered in this study include three major social benefits, viz. education, medical and housing benefits. The following paragraphs describe briefly each of these adjustments.

1.1 OBJECTIVES The study covers the following objectives: 1. To know about the probable and expected effects of taxation on individual assessee. 2. To study the basic taxation structure and clarity of present scenario of taxation. 1.2 SOURCES OF DATA The data for the project work has been collected from two sources i.e. primary and secondary. 1. PRIMARY DATA: Primary data was collected with the help of questionnaires provided by the company. 2. SECONDARY DATA: Data from various websites, transcripts of books, journals, etc. 1.3 RESEARCH QUESTIONS The research questions were: 1. What is your source of income? 2. What is your annual income?

3. Are you liable to pay taxes or aware of income tax rates of individuals? 4. Number of dependents in your family? 5. Do you find tax liability a burden or regressive in nature? 6. Do you file income tax return regularly? 7. Are you aware about the advantages of filling income tax return? 8. Do you have any suggestions for government to address? 1.4 SAMPLE PLAN AND SAMPLE SIZE Sampling unit: An auditor or chartered accountants. Sample size: 50. 1.5 IMPORTANCE OF THE STUDY In a developing economy like India, tax occupies a strategically important position in the overall development of the country due to its significant contribution to the national exchequer, which is ultimately spent on the overall development of different sectors of the economy. The budget for 1991-92 indicated a major effort toward correcting the fiscal imbalances and increasing the tax revenue through increase in the direct taxes. The study analyzes the impact of direct tax reforms on Individual assessee. The study reveals that tax reforms introduced during the post-liberalization period could not generate the results as desired. The reduction in direct tax rates could not lead to better tax compliance in a much desired manner. Tax reforms have increased the number of assessees but the resultant increase in the tax revenue has not been sufficient. The major share of taxes comes from low income groups. This ineffectiveness will widen the gap between rich and poor and will lead to further inequality in the society. The rising arrears of taxes have further put a question mark on the efficiency and effectiveness of the tax collecting machinery. The widening fiscal deficit over the period will reduce investments in social sectors, like education and health. Therefore, there is again a very strong need to review the tax reform policies being followed in the postliberalization period. 1.6 LIMITATIONS OF THE STUDY Though every care has been taken to make this report authentic in every sense, yet there were a few uncomfortable factors, which might have their influence on the final report. Linking factors can be stated as below:

TIME CONSTRAINT: Due to lack of time i.e. 6 weeks, it was not possible to deeply study every aspect of customers and devote enough time for research work. But still sincere efforts were put to reach to the reliable conclusion. DATA COLECTION CONSTRAINT: There were many problems regarding the collection of primary data which are as follows: 1. As the questioners were filled during the working hours, the respondents had little time to devote for filling the questionnaires. 2. Some respondents did not have their serious attitude towards the questionnaire and hence their responses may not reflect the real picture 3. Some of the respondents were not candid enough to reveal all the required information. They might have given inflated or wrong data. 4. However all the efforts were made to remove the biasness but it cannot be denied that there is no possibility of individual biasness on the part of respondent.

COMPANY PROFILE
2.0 Mr. Peeyush Sharma, B.Com. (Hons.), F.C.A, DISA (ICA). Mr. Peeyush Sharma after obtaining his Bachelors degree in Commerce from the HNB GHARWAL University of Srinagar did his apprenticeship with M/s. Akhil N Sakhlani & Co., Chartered Accountants, Dehradun and after qualifying the examination, joined as a partner in Nagia & Co. w.e.f. April 2003. Mr. Peeyush Sharma is the Managing Partner of the firm, M/s Peeyush Sharma & Co., Chartered Accountants and in that capacity looks after the entire range of practice relating to Audit, Direct Taxes including planning for corporates & nonresident Indians and rendering of Consultancy on Accounting, Company Law, Taxation & FEMA matters. He has been involved in the audit of major corporate and non-corporate clients in industries such as textiles, engineering, publishing, paper, travel, software, healthcare etc. He has also been involved in the audit of major nationalized banks. He has an in-depth knowledge of the trends and practices in the Banking Industry. He further has an extensive exposure to the Indian Accounting and Auditing Standards. Apart from advising clients (both domestic and international) on various issues under the Income-Tax Act, Wealth Tax Act and Double Taxation Avoidance Agreements, he has a vast experience in handling assessment proceedings under the Income-tax Act. He also handles appellate matters before the Commissioner of Income tax (Appeals) and the Income-tax Appellate Tribunal (ITAT). He has a good exposure to business valuations and has handled share valuation assignments for MNCs. His ability to understand the business environment coupled with his sound financial and accounting background has enabled him to specialise in conducting statutory audits of companies. He has also been involved in preparation of project reports for various small and medium size enterprises and has assisted them in getting their projects financed from nationalised banks.

REVIEW OF LITERATURE
3.0 INTRODUCTION An Income tax is a tax that is levied on the income of a person, corporate or business. It is a way adopted by the government to check the earnings of a particular person, business or firm. In many cases there are individuals who have huge amount of black money. Black money is the money that has no records in the books of the government. Hence in order to check such miscreants there is Income tax system. Every country has its own Income tax system. In the same manner there is Income tax rules India and the Income tax is levied on every individual, corporate or firm that is the citizen of this country. The taxes may be of different types. The taxes that are levied on the income of the corporate are known as the corporate tax and it is levied on the net income of the corporate. Indian income tax is that compulsory payment to the government which is made for the purpose of meeting the expenditure required to be incurred on acts of Public Welfare. Payment for this income tax return is of a definite type. That is the reason why, it is said that only two things in life are definite- firstly, death and secondly, Indian income tax. The tax payer has no concern as regards the proportionate benefit out of the tax paid. This income tax return by any person is defined in accordance with the income tax slabs India which is predetermined by the central government. Characteristics of Indian income tax include some of the major points in it which makes it easier to understand the term itself. According to the Indian income tax, tax is a compulsory payment. The amount realized in this Indian income tax form is utilized in any activity of Public Welfare and in other public interest. The government does not grant any direct income tax return or advantage to the tax payer for the taxes paid by any person. Hence, the tax payer has no direct relation with the benefit received by them against such income tax return. Here, the thing which should be kept in mind is the incomes which are exempted from taxes according to the income tax slabs India rules. These rules regarding income tax slabs India defines some of the heads which are totally or partially exempted from taxation charges. Such incomes which are generated from salaries, from household properties, profit ad gains of business or professions, capital gains or from any other sources like lottery, games, betting and sports are exempted totally or are charged with some percentages according to the rules regarding income tax slabs India.

Apart from the above major heads of sources of incomes and taxes, there are many other aspects of the income tax slabs India which defines some other fields on which basis the tax is imposed and other income tax return are submitted. This return includes aspects and features like when the return is to be filed of loss, chances of return be filed beyond time limit, incomplete return, PAN, schemes to facilitate submission of returns through Tax Return Preparers, self-assessment and its notice, best judgment assessment and other obligations to furnish the annual information of return. The reviewed literature is divided under the following heads: Defects in Tax System. Comparison of current taxation system with ideal taxation system. Effects of irrational rates and complex taxation system.

3.1 DEFFECTS IN TAX SYSTEM The characteristics of current taxation system in India can be described as follows: Narrow based and limited coverage of direct taxation. Reliance on Indirect Taxes. Inequitable and hence regressive. Non-Productive & irrational nature. Uncertain. Inelastic. Uneconomical. Complex nature of taxes. Tax laws open for interpretation.

1. Narrow Base and Limited Coverage Taxes are divided into direct taxes and indirect taxes. Direct taxes are those, which are borne by those who pay them to the government in the first instance. Indirect taxes are paid by one but later recovered from others. We can say that taxes on income and wealth are direct taxes while those on commodities and services are indirect taxes. There are many direct taxes levied in India. But the Union taxes remain restricted to non-agriculturists and non-agricultural

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income, wealth, inheritance or capital gains. As the States also do not levy any significant taxes on agricultural incomes, direct taxes are restricted to a few non-agriculturists. 2. Reliance on Indirect Taxes In India, the need for more revenue was met by levying more and more taxes on commodities rather than on income and wealth. Taxing commodities of all types - raw materials, semifinished goods, spare parts, components and finished goods resulted in a high cost of production and subsequent high prices. The process was no doubt helped by inflationary trends caused by increase in money supply, but indirect taxes of high order were mainly responsible for soaring prices. The table below gives examples of the impact of high indirect taxation on sales price. Direct taxes contributed 29% of all the tax revenue of Union and State governments in 196061. By 1990-91 the proportion had fallen to 16%. The new economic policy led to rise in this proportion to 28% in the budget for 2003-2004 & 40% in 2007-08. 3. Inequitable hence Regressive. A regressive tax system is one, where the proportion of tax amount to income decreases with rise in income. In India, commodity taxes on essential goods used by the poor make the system regressive. 4. Non-Productive & irrational nature Due to the complex nature of the tax system, checking the correctness of the information furnished by the taxpayers becomes a difficult job. Attempts to increase the number of taxpayers are hampered as assessment gets delayed due to increased workload on the staff. To solve the problem, detailed scrutiny is restricted to a small proportion of assesses. The result is understatement of income or non-filing of tax returns. Frequent changes in taxes result in inconsistency. A new tax might be introduced without studying whether it is consistent with the existing tax system. For example, a tax on bonus issues was levied to supplement the tax on dividends. It continued after the latter tax was abolished. The gift tax was supplementary to Estate Duty, but continued after the Estate Duty was abolished. It is now withdrawn. Tax concessions are given to encourage savings, but wealth accumulated out of savings is taxed.

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Concessions for savings result more in diverting savings from one form to another rather than increasing total savings. When investment in National Savings Certificates was made eligible for tax concessions, bank deposits of same maturity and paying equal or even less interest were not considered for tax concessions. Further, concessions for savings benefited more, the richer persons subjected to higher rates of taxes; until the government introduced tax rebate in place of deduction for tax purposes. 5. Uncertain Every budget adds some provisions and deletes some. Tax rates are frequently changed. New concessions are added and existing concessions are withdrawn. New taxes are levied and existing taxes are abolished. Long term planning becomes impossible under such conditions. 6. Inelastic Nature Elasticity refers to the change in tax revenue with change in income. In India, due to predominance of commodity taxes, which were until recently, mostly specific taxes, the tax revenue did not change much with change in incomes. Tax rates had to be raised to collect additional revenue. 7. Multiplicity of Taxes, hence Uneconomical Due to the division of tax powers and due to the need to collect taxes from as many persons as possible, a number of taxes are being levied in India. A person earning income from more than one source may be subjected to Union Personal Income Tax, State Agricultural Income Tax and Profession Tax. If he holds property, he may be subjected to Union Wealth Tax, State Agricultural Wealth Tax, Land Revenue and Local Property Tax. The goods, which we buy, may have reached us after paying Customs Duty, Excise Duty, Sales Tax and Octroi. It is doubtful, whether, even a tax consultant will be able to tell us the NUMBER of taxes levied in India, let alone naming them all.

8. Complex Nature of Taxes After the government has levied a tax, changes become necessary to plug loopholes or to create desirable incentives or disincentives. For example, Income has to be defined unambiguously for tax purpose. Exemptions, deductions and rebates are to be prescribed, and surcharges are to be introduced for specific purposes. A schedule of tax rates is to be

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prescribed. Because of all this, it becomes difficult to know how much tax a person is supposed to pay. 9. Tax laws open for interpretation The complex nature of tax laws gives more powers to the tax authorities. They can issue orders interpreting the tax laws differently in different cases. This leads to litigation and delays in collecting taxes. The taxpayer is treated with suspicion and honest taxpayers suffer. Even if the orders of tax authorities prove wrong, they (authorities), lose nothing. The taxpayer loses time and money in litigation. 3.2 COMPARISON OF CURRENT TAXATION SYSTEM WITH IDEAL TAXATION Comparison of current taxation system with ideal taxation system based on cannons (principles) is given below: Cannon of Equity Cannon of Productivity Cannon of Simplicity Cannon of Certainty Cannon of Elasticity Cannon of Economy

1. Cannon of Equity Every person will have to pay the taxes to government in proportion to his "ability to pay". This means the rich should be taxed more than the poor. In accordance with this cannon, the taxation gets divided into direct (tax on income) and indirect tax (tax on consumption). Cannon of equity implies that the direct tax should always be more than the indirect tax... however the current taxation system has just the reverse ratio: 40% to 60% in terms of contribution to revenue. 2. Cannon of Productivity According to this cannon, the tax should be of such a nature as to yield sufficient income to the government. The growing revenue deficit of all levels of government - central, state and

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local, over the last few years, is a clear indication that the current taxation system has failed miserably. 3. Cannon of Simplicity According to these cannon, every tax should be simple so that the taxpayer can understand its implication without the help of experts. If the tax is complex and complicated, the taxpayer will have to seek assistance of experts to understand its implications. Besides, a complicated tax also increases the chances of corruption in the country. The current taxation system is complex beyond comprehension. 4. Cannon of Certainty This means payable tax should be certain and not arbitrary. It means the tax payer should know in advance how much tax he has to pay, at what time and in what form. If the tax is "Certain", the tax official cannot exploit the taxpayer in any manner. Because of this the taxpayer as well as the government benefit, as the taxpayer can make the provision for tax in advance and the government also will be able to estimate accurately the amount of revenue, which is going to accrue to it from the tax. The current taxation system due to - a multitude of tax points, multiple tax rates and multiple exemptions and the ever-shifting governmental policies - produces a state of permanent confusion in the minds of the taxpayer. This is a clear violation of the cannon of certainty. 5. Cannon of Elasticity The taxation system should provide the government with an increased income with the increase in national income of a country. The taxation system should also yield more income when the government expenditure goes up at a time of emergency or crisis. It should be possible then, to obtain more income with slight increase in the rate of taxes. By implication, elasticity also implies that the tax rate should be capable of being revised in the downward direction when the economy is confronted with recession and decline in economic activity. The current tax regime due to - its complexity and the already high levels of tax rates - has lost its elasticity. 6. Cannon of Economy

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According to these cannon, the tax should be such as to bring the maximum part of the collected revenue into government treasuries. In other words, the cost of tax collection should be minimum. The current unmanageably complex and wasteful infrastructure clearly violates this cannon. 3.3 EFFECTS OF IRRATIONAL RATES AND COMPLEX TAXATION SYSTEM Effects of irrational rates and complex taxation system are as follow: People are naturally inclined to evade tax As percentage of tax overheads is higher, business and industry sector gives more focus on tax management rather than carrying out R & D activities and maintain quality standards Negative impact on creativity and innovativeness of the work force Ever-thinning employment creation potential of the Industry, (with frightening increase in unemployment levels) Total dependence on imported know-how and technology Invasion of the Indian market by foreign industries Increasing import export trade gap Inability of the government to respond effectively to natural and man-made calamities like flood, draught, war etc., due to poor revenue base Indirect promotion of anti-social businesses and industries like liquor, cigarette, tobacco, lottery etc. Very high exercise duties levied on these products make them guaranteed revenue sources hence cannot be banned Creation of a huge amount of black money (money generated due to tax evasion) resulting in the formulation of a parallel economy in the country.

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NEW DIRECT TAX CODE

4.0 INTRODUCTION In a civilized society it is necessary to have good governance. Good governance needs good government. Good government need revenue to meet administrative expenses of running the government and also for other social welfare measures like providing education, medical treatment, infrastructure and other necessary facilities for the society. The main source of revenue of the government is tax which is imposed directly on a persons income earned during a financial year. Income tax is one of the important sources of revenue for the government and it has also been utilized for meeting various other socio-economic objectives of the government. Income-Tax is a direct tax, levied and collected by the Central Govt. The provisions of income-tax are contained in the income-tax Act, 1961 which extends to the whole of India and became effective from Ist day of April, 1962. The Govt. has set-up a separate income-tax department for this purpose. Income-tax is a very important source of income of the Central Government. Income-tax department functions under the direct control and supervision of Central Board of Direct Taxes (CBDT) which is under the Finance Ministry of the Government of India. Income-tax is a tax on income, levied on the previous years total taxable income of an assesses (person) at the rates applicable during the current year. The rates of income-tax are given in the Finance Act, passed by the Parliament every year. These rates are divided into various slabs of income. For every income-slab there is a different rate of income-tax. As the income slab goes up, the rate of income-tax also goes up. As a result more income-tax is charged on higher income. Income-tax Act, 1961, had been amended at several times and the following amending legislations have been passed from time to time to amend this Act:i) Taxation Laws (Amendment) Act, 1962, 1965, 1967, 1970, 1972, 1975, 1978, 1984, 1986, 1991 and 2006. ii) Income-tax (Amendment) Act, 1963, 1965, 1972, 1973, 1976, 1981, 1989, 1996, 1997 and 1998. iii) Direct Tax Laws (Amendment) Act, 1964, 1974, 1987 and 1989. Income-tax Act, 1961 has become the most complicated Act of the country due to the amendments at several times. The Jurists, The Accountants and the Economists call it as the most complicated Act of the world. Government of India is also aware of this fact and has

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been trying to simplify the tax structure. For this purpose the Central Govt. appointed a Direct Taxes Enquiry Committee in 1970 under the chairmanship of Dr. K.N. Wanchoo to suggest measures to curb the evil effects of black money on the national economy. In 1977 the Choksi Committee was appointed under the chairmanship of Sir C.S.Choksi which submitted its interim report in December, 1977 and final report in October, 1978. This way the first solid attempt of the then Janta Government to simplify the tax structure and to bring some radical changes in the income-tax Act. Various amendments were made in the income-tax Act, 1961 incorporating the recommendations of the committee. The present law of income-tax is complicated and impracticable which needs to simplify. The Chailleya Committee under the chairmanship of Raja Chailleya was constituted to suggest for improvement and simplify the present tax-structure. The committee submitted its report in 1991-92 and the government has started implementing its suggestions from 1992-93 budgets. The rates of income-tax have been reduced and the difference between the highest and lowest tax rates has been reduced. Now the lowest income-tax rate is 10% and the highest rate is 30%. It was expected that several effective measures would be taken and effective improvements in the procedure would be effected in the budget 1995-96, but nothing expected was done so far. An Expert Group of 9 members under the chairmanship of Dr. Amaresh Bagechi was constituted by the Govt. of India, through its order dated 6th August, 1996 to examine the existing income-tax structure and to suggest changes in the light of new economic policy and tax reforms. The Group was to submit its report on the proposed new tax laws by 31st Dec., 1996, which was extended to 28th Feb., 1997. After an extensive discussion with professionals and other bodies in the area of income-tax, the Expert Group submitted its report during the limited time available. The report is divided into fourteen chapters and highlights the salient changes in the income-tax for which the Bill is currently being drafted. It is expected that the tax structure would be simplified very soon so that the tendency of tax evasion by the assessee is prevented. 4.1 DIRECT TAX CODE The Finance Ministry has released a new Draft Direct Tax Code, which was proposed to be come into existence with effect from Ist April, 2011. The new proposals of draft seem to be some really big changes in Taxation Laws if Direct Tax Code comes into existence in year 2011. The major changes which can affect a common man may be as follows:-

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1. The new slab of tax for an individual assessee would be:Upto 1.6 lacs: Nil; 1.6 to 10 lacs: 10%; 10 25 lacs: 20%; Above 25 lacs: 30% It may become the biggest change in the history of taxation law if it actually was made applicable because almost 98% of Indian will then pay 10% tax because majority of the peoples taxable income is below 10 lacs. 2. Corporate tax will be 25% from 30%. This will reduce the tax burden of companies which will be helpful in increasing their profitability to some extent. 3. The deduction u/s 80C may be raised to 3 lacs in comparison to present Rs. 1 lac. It will be encouraging for tax payer to invest more in different saving schemes approved under this section. 4. Tax on maturity amount from insurance policies, PPF, EPF and GPF will be big turn-off of new draft. As per proposals of new draft the amount accrued till 2011 will not be taxable but after 2011 the amount received on maturity will be fully taxable. 5. The exemption you get on interest on House loan upto 1.5 lac will not be allowed as per new proposal in direct tax code. It will be great loss for tax payer who gets benefits of House loan interest in case of self occupied house. 6. Perquisites likes free lunch, interest free loan etc. which are at present either tax free or exempted up to certain limit will be fully taxable as per proposals of new direct tax code which will increase the tax liability of employees who are getting such type of perks from their employers. 7. Investment in Mutual funds, Shares, Bonds etc. will be treated long term capital assests after 3 years holding as compared to 1 year previously. Income from short term capital gain will be treated as normal income and will be taxed at applicable rate of tax on an individual. 8. Securities Transaction Tax (STT) will be abolished which at present is applicable on transactions of buying and selling shares.

These were some major proposals of original draft of Direct Tax Code but later on Finance Minister Pranab Murkherjee in his 2011-12 budget speech said that Direct Tax Code is proposed to be implemented from April 1, 2012 instead of April 1, 2011. Besides changing the date of implementation from 2011 to 2012 some other changes has also been proposed in the Direct Tax Code. As far simplification of tax procedure is concerned, there is no change in the procedure of filing of Return and other documents with the Income Tax Department. The

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only benefit to the Income Tax Department is that by increasing income tax exemption limit upto Rs. 2 lacs the tax payees number will reduce by 10-15% which will help the department in reducing their paper work to some extent. From the above, you can see that due to these changes the Direct Tax Code will be beneficial for a few income groups individual tax payers which is still an assumption on the basis of proposals of Direct Tax Code. The picture will become clear only after it actually comes into force as a finance bill passed by the Govt. of India. Government and many international agencies claim that the middle class population of India is 300 million strong and is more than the entire population of Germany. If we consider this 300 million people means at least 60 million families i.e. 60 million individual assesses. Our individual tax payers are only 3.25 crore, which means that 2.75 crore people still are not paying taxes. It is a question of great concern to find out these 2.75 crore people Are they farmers (as agriculture income is tax free)? Are they businessmen (a chunk of whom earn in black)? Are they politicians (who dont declare their income)? In order to increase the revenue from income-tax and to provide benefit to a maximum number of tax payers it may be suggested to increase taxable slabs until a certain point and reduce tax rates, may be considered as an effective measures to improve the present tax structure of India economy. Although it may cause some financial loss to Government revenue but in long run it will be beneficial for the economy by encouraging more people to give taxes at a reasonable rate.

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DATA ANALYSIS AND SUGGESTIONS

5.0 DATA ANALYSIS 1. WHAT IS THE SOURCE OF INCOME OF INDIVIDUAL ASSESSEES?
SOURCE OF INCOME SALARY HOUSE PROPERTY BUSINESS & PROFESSION CAPITAL GAIN OTHER SOURCES NO. OF ASSESSEE 12 5 28 4 1 PERCENTAGE 24% 10% 56% 8% 2%

Table No.1: Sources of Income

SOURCE OF INCOME
SALARY HOUSE PROPERTY BUSINESS & PROFESSION CAPITAL GAIN OTHER SOURCES

Figure No.2: Graphical Representation of Table No.1 ANALYSIS: From the sample size of 50 assessees, 56% individuals have their income from business and profession, 12% individuals have their income from salary, rest 5%, 4%, and 1% from house property, capital gain and other sources respectively. 2. TOTAL ANNUAL INCOME OF INDIVIDUAL ASSESSEES.
ANNUAL INCOME 0-160000 160001-500000 500001-800000 800001-ABOVE NO. OF ASSESSEE 6 28 12 4 PERCENTAGE 12 56 24 8

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Table No.2: Total Annual Income

TOTAL ANNUAL INCOME

0-160000 160000-500000 500000-800000 800000-ABOVE

Figure No.3: Graphical Representation of table No.2 ANALYSIS: This is evident that the majority individuals assessees are middle class as it is seen that 56% individuals lie under the income range of 160000 to 500000 who can find it difficult at times to pay taxes to government under such level of income in such an inflationary economy where prices of goods and services are at peak. It was also find that even the individuals from income range of 800000 & above, find it difficult to pay taxes at times. 3. AWARENESS OF TAX RATES AMONG ASSESSEES
NO. OF ASSESSEE 39 5 RESULT NO YES PERCENTAGE 78% 10%

Table No. 3: Awareness of Tax Rates

AWARENESS OF TAX RATES

39 NO 5 YES

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Figure No.4: Graphical Representation of Table No.3

ANALYSIS: More than 78% of Assessee are not aware of income tax rates and return filling procedure that is the reason they move to professionals like Chartered Accountants, Income tax lawyers, etc for return filling process. 4. NUMBER OF ASSESSEES FOUND LIABLE TO PAY TAXES
NO OF ASSESSEES 44 6 LIABLE TO PAY TAX YES NO PERCENTAGE 88 12

Table No.4: Assessee Liable to Pay Taxes.

LIABLE TO PAY TAXES

44 YES 6 NO

Figure No.5: Graphical Representation of Table No. 4 ANALYSIS: A high percentage of assessees were found liable to pay taxes i.e. 88%, rest only a minor percentage of 12% were found who were not liable to pay taxes. 5. DO ASSESSEES FIND INCOME TAX RATE TO BE REGRESSIVE?
NO. OF ASSESSEE 48 2 RESULT YES NO PERCENTAGE 96% 4%

Table No. 5: Tax Regressive in Nature

TAX REGRESSIVE IN NATURE

48 YES 2 NO

22 Figure No.: 6: Graphical Representation of Table No.5 ANALYSIS: 96% of the individual assessee agrees with the fact that the income tax levied by the government of India is regressive in nature. A regressive tax is a tax imposed in such a manner

that the tax rate decreases as the amount subject to taxation increases. "Regressive" describes a distribution effect on income or expenditure, referring to the way the rate progresses from high to low, where the average tax rate exceeds the marginal tax rate. In terms of individual income and wealth, a regressive tax imposes a greater burden (relative to resources) on the poor than on the rich there is an inverse relationship between the tax rate and the taxpayer's ability to pay as measured by assets, consumption, or income. 6. NUMBER OF DEPENDENTS IN THE FAMILIESOF TAXABLE ASSESSEES.
DEPENDENTS 1 2 3 4 & ABOVE NO. OF ASSESSEE 0 3 5 34 PERCENTAGE 0 6.82 % 15.91% 77.27%

Table No.6: Number of Dependents in Family

DEPENDENTS

1 2 3 4 & ABOVE

Figure No.7: Graphical Representation of Table No.6 ANALYSIS: This is evident that tax payers have a high percentage of dependents in a family. The spouse and unmarried children (under 21 years of age) of the primary immigrant or nonimmigrant are considered immediate family members for immigration purposes and are defined as dependents. The high the dependents in a family the higher is the expense. 7. DO YOU FING TAX LIABILITY A BURDEN OR AN INCREASE IN YOUR EXPENSES.
NO. OF ASSESSEE RESULT PERCENTAGE

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38 6 YES NO 86.36% 13.64%

Table No.7: Tax liability, a burden or an increase in expense.

TAX LIABILITY A BURDEN

38 YES 6 NO

Figure No.8: Graphical Representation of TableNo.7. ANALYSIS: It was expected prior to analysis of this data that the high percentage will favour that tax liability is a burden and an increase in expenditure. But I personally think this is not acceptable. Tax burden' is a phrase with which we are all so familiar that we don't stop to think what it means--nor what it implies. At first blush it seems value-free. But plainly a `burden' is something to be lifted. We don't refer to the monies we spend on movies, popcorn, milk or shoes as `burdens.' We refer to them--and think of them--as expenditures, some (movies and popcorn) optional, others (food, shoes) necessary. We don't speak of our `consumption burden.' Why, then, a `tax burden'? Is it that our tax payments are not optional but our food expenditures are? That can't be it: We have to buy food. We can choose between steak and hamburger (or yogurt and tofu), but we can't choose between eating and starving. Indeed, the penalty for not eating far exceeds the penalty for nonpayment of taxes. Yet we do not speak of the `food burden.' 8. HOW MUCH DOES THE TAX LIABILITY DISBALANCE ONES FINANCIAL BUDGET? EFFECT NO. OF ASSESSEE HIGH 40 MODERATE 3 LOW 1 Table No.8: Impact of tax on financial budget PERCENTAGE 90.91 6.82 2.27

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IMPACT OF TAX

HIGH MODERATE LOW

Figure No.9: Graphical Representation of Table No.8 ANALYSIS: Ones again 91% of individual assessee agrees with the fact that the impact of tax is high on financial budget. 9. DO YOU FILE INCOME TAX RETURN REGULARLY?
NO. OF ASSESSEE 46 4 RESULT YES NO PERCENTAGE 92% 8%

Table No.9: Filling income tax return.

FILLING INCOME TAX RETURN

46 YES 4 NO

Figure No.10: Graphical Representation of Table No.9 ANALYSIS: A good percentage of individual assessees were found filling income tax return regularly. 10. ARE YOU AWARE OF ADVANTAGES ASSOCIATED WITH FILLING OF INCOME TAX RETURN?
NO. OF ASSESSEE RESULT 50 YES Table No.10: Advantages of filling income tax return PERCENTAGE 100%

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ANALYSIS: This was also expected from the sample data those individual assessees are aware of advantages associated with filling of income tax return. 5.1 SUGGESTIONS Parallel economy is posing many fundamental problems before the nation and is thus having highly destructive effects on the development of nation, as seen below:

Unrestrained generation of black money leading to unlimited scope for corruption High banking interest rates and thus inflation Retarded cash-flow cycle Velocity of circulation of money reduces because, in every one rupee, seventy paise become black money and thus, not available for credit-flow in national economy

Industries and trades facing the N.P.A. (Non Performing Assets) problem Inability of industries to repay loans Slowing down of industrial growth Continuous increase in budgetary deficit Increasing bitterness in the center-state and state-local government relationships (e.g. Eleventh Finance Commission Dispute)

N.P.A. is a major hurdle in the interest rate rationalization process of banks Law and Order system in the country is under tremendous pressure Lack of revenue with the government Therefore, no money for training & modernization Lack of moral support Black money has the power to influence law & order.

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BIBLIOGRAPHY
1. Systematic approach to Income Tax by Dr. Girish Ahuja and Dr. Ravi Gupta. 2. www.incometaxindia.gov.in 3. www.icai.org.in 4. http://indiabudget.nic.in/budget.asp 5. http://www.finmin.nic.in/dtcode/index.asp 6. http://www.nasi.org/discuss/2009/04/why-do-we-call-taxes-burden 7. www.arthakranti.org/analysis/current-tax-system