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Soubhagyabati Behera Soubhagyabati Behera Satyabrata Satyabrat Pradhan Pradhan Amit Kumar Bardhan Amit Kumar Bardhan

A means by which Govt. finance their expenditure by imposing charges on citizens of a country.

Otherwise govt. use taxation to encourage or discourage certain economic decision

Generally

we pay taxes in order to support Social Security, Health care, National defense and Social services

It is a compulsory contribution imposed by a public authority. It is the main source of income for public authorities.

NATIONAL TAXES Collected by the central govt. like income tax, wealth tax, corporate tax , custom duties STATE TAXES on goods and services manufactured and produces in the state like land and real estate tax, stamp duties LOCAL TAXES By municipalities or municipal corporate or development authorities like sanitation , water and property tax

Direct tax
Directly paid by the persons on whom it is legally imposed. Impact is on the same person who pays the tax. Tax burden cannot be shifted to other persons and the consumer directly pay to the local govt., state govt. Ex- income tax, house property tax, land and estate tax or service tax.

Indirect tax
Indirectly paid by the other persons. Impact is on many persons.

Tax burden can shift to the other persons other than the payee.

Ex-Consumption taxes , excise duties , sales tax, octroi.

Reducing disparities in income and wealth distribution Restraining consumer demand with a view to containing inflation Promoting savings and investment Shifting investment from non-essential , nonpriority to priority sectors

On 12th August, 2009 Hon'ble Finance Minister Shri Pranab Mukherjee released the Draft Direct Taxes Code for public debate. Based on the inputs from the public, the Government will finalize the Draft Taxes Code Bill for presentation in the winter session of Parliament, 2009. The new law is proposed to be effective from 1st April, 2012. Revised bill on DTC is now under consideration of standing committee on finance , which is expected to come in this budget session 2013-2014. The proposed Direct Tax Code is a combination of major tax relief and removal of most tax-exempted benefits.

Rationalization of the tax rates Simplification of the tax laws Easy tax payment Reduction in customs and excise duties Lowering corporate tax Widening of the tax base Modulating the tax administration Increasing TAX to GDP

Series 1
Series 1 39% 26.90% 10% 28.30% 17.00% 44.60% 40.60%

Current law Income-tax Act, 1961, Almost five decades old Over 5000 amendments seriously mutilated Puzzled with thousands of provisions and sub-sections Lots of exemption & compliance issues Agricultural tax

Income Tax

Fringe Benefit Tax

DTC

Wealth tax

Dividend Distribution Tax

Up to 2 lakh
2 lakh to 5 lakh 5 lakh to 10 lakh Above 10 lakh

NIL

Up to 3 lakh
3 lakh to 10 lakh 10 lakh to 25 lakh Above 25 lakh

NIL

10 %

10 %

20 % 30 %

20 % 30%

Current tax rates

Direct tax code

Rent free accommodation calculation for government employees will be same as the non government employees. Also a major development has been the EET proposal from EEE

EEE stood for Exempt exempt exempt

Whenever money is invested it leads to exemption if invested as per the act, the income earned on it is exempt and the proceeds received at the end were also totally exempt from tax. EET stands for Exempt Exempt Tax

Whenever money is invested it leads to exemption if invested as per the act, the income earned on it is exempt and the proceeds received at the end will now be taxable.

Mr. A has invested money in retirement benefit plan amounting to Rs.100,000 every year. He has been investing money since last 15 years. He gets Rs. 8500 as interest every year on the money invested which gets accumulated. On retirement he will get a total amount of Rs. 30,00,000.

Current tax regime: EEE is the current system:

So whenever he invests money he gets exemption of Rs. 100,000 every year. The interest earned by him every year is exempt from Tax. On retirement Rs. 30,00,000 received by him will be exempt from tax.

Direct Tax Code: EET is the proposed system: So whenever he invests money he gets exemption of Rs. 100,000 every year. The interest earned by him every year is exempt from Tax. On retirement Rs. 30,00,000 received by him will be taxable. The taxable amount will be Rs. 15,00,000 (30,00,00015,00,000) There is no clarity on the plans which wont fall under EET scheme.

People in the low-income category will be hit by the proposal as it abolishes the exemption on HRA benefits. India has a saving rate of almost 35% while most of the developed countries have the saving rate (ratio of gross national savings to GDP) around 14-20%. It proposes to introduce exempt-exempt-taxation (EET) method and taxing capital gains may discourage saving.

Two major changes have taken place in income from house property. Amount of repairs allowed as deduction has been reduced from 30% of rent to 20% of rent. Amount of deduction available on interest paid on own house, not let out is totally eliminated.

Mr. A is the owner of 2 houses. House 1 is used by the owner as his residence. House 2 is let out by him and he is earning annual rent of Rs.90,000. The house which is used by him as own residence is purchased by taking a loan the interest of which is 45000.

Calculation under Current Tax System:

Income from Own house Rent 0 (as it is not let out) Interest paid -45000 Total -45000 Income from house let out Rent 90,000 Repairs 36,000 , Total 54,000 Total income from house property is 9,000.

Calculation under Direct Tax Code :

Rent - 0 Interest allowed - 0

Total - 0

Income from house let out Rent 90,000 Repairs 18,000 (1/5 of rent) Total - 72,000 Total income from house property is Rs. 72,000.

People in the low-income category will be hit by the proposal as it abolishes the exemption on home loan interest for self occupied property. However, if the same house or second house is given on rent, the person will get tax benefits on interest payout and that too, unlimited interest payment. Obviously the government seeks to favour landlords over tenants.

No distinction in short term and long term capital gain. Indexation advantage available on asset held for more than one year. Single tax rate for short term and long term capital asset.

Mr. X sold 200 shares of Reliance @ 1100. 100 shares were purchased 5 years back by him at indexed cost of 900 and 100 shares were purchased 9 months back at the cost of 900. Calculate Capital Gains tax.

Current Tax Rates Long term zero. No tax on shares which are listed and held for 1 year.

Short term 100 Shares *( 1100{Selling price}-900{Cost}) 20000 Rs. Capital Gain Tax is 10% of 20000 or Rs. 2000/Direct Tax Code Tax is 200 shares(1100{selling price} - 900 {cost}) 40,000 Rs. Capital Gain Tax is 20% of 40,000 or Rs. 8000/-

Removal of distinction between the long term and short term capital gains and taxing them at respective slab rates of individuals is another shocker. Those already in highest tax bracket may be negatively impacted while those in lower tax rate slabs may be positively impacted.

Depreciation regarding block of asset Loss will carry forward for indefinite period In house research and development expenditure qualifies for 200% of weighted deduction

Any amount exceeding Rs. 20,000 taken or accepted or repaid as loan or deposit otherwise than by account payee cheque or draft shall be deemed to be income, and included under this head and taxed accordingly Income from abroad is not coming under residuary income ( other source).

1.Current income from ordinary source less Unabsorbed losses Gross total income from ordinary source less incentives ( deductions) Total income from ordinary sources

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2.Current income from special sources less Unabsorbed losses Total income from special sources
3. Total Taxable Income Total income from ordinary sources Total income from special sources

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Single code for direct tax Reducing the scope for litigation Flexibility Ensure that law can be reflected in a form Consolidation of provision Elimination of regulatory function Providing stability

Use of simple language Surcharges and education cess will be abolished Assessment year and previous year concept is abolished , only financial year terminology exist Residential status confined to resident and nonresident only Increase in deduction level up to 3 lakh against 1 lakh for all types of savings under 80 C

An ideal direct tax system should be simple to understand and administer, equitable and progressive, and reward economic activity. The two broad heads of income would now be income from ordinary source and income from special source. The first head would include income from employment; house property and business while the second head would include non resident income , equity and equity oriented funds and income of any other nature. DTC endeavors to make the direct tax more equitable and progressive; however in actual practice it is to be tested. DTC has very wide scope of practical implications near future.

By reducing the effective tax burden for those with the higher propensity to save and invest (individuals with income of Rs 5 lakh and more), the DTC may improve the chances of economic growth. DTC is a step in the right direction to being investor friendly. India has a low tax-to-GDP ratio of around 10% and there is enough scope for improvement. It seems that government takes from one assessee and gives benefit to another assessee. Removal of exemptions has been compensated by increase in tax bracket Though many SME enjoy strong profitability growth over last decade ,they do not pay tax

DTC is not an amended version of Income Tax act 1961 but a new code based on international practices which will be compliable with the need of the fast developing economy

Thank you ..!!

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