Mukesh Patel.in
practical tax & investment planning online
international tax expert / columnist / author / speaker

INCOME TAX, NO LONGER AS TAXING!

You can plan to pay tax of Rs.4,01,700 on family income of Rs.33 lakhs, at an average tax rate of just 12.17%!

        Just consider some tax facts of the past eight years as highlighted hereunder:

  • In FY 2004-05, the basic Income-tax exemption limit was Rs.50,000 and taxable income exceeding Rs.1,50,000 attracted the maximum tax rate of 30%.

  • Today in FY 2012-13, the basic Income-tax exemption limit is Rs.2,00,000 and the maximum tax rate of 30% is attracted only if the taxable income exceeds Rs.10,00,000.

  • In FY 2004-05, the Income-tax payable on taxable income of Rs.10,00,000 was  Rs.3,07,428, on the basis of which the average rate of tax worked out to 30.74%.

  • Today in FY 2012-13, the Income-tax payable on the same taxable income of Rs.10,00,000 is Rs.1,33,900, resulting in an average tax rate of just 13.39%.  

  • Thus, during the past eight years, taxpayers earning taxable income of Rs.10,00,000 or more, have effectively enjoyed a tax relief of Rs.1,73,528. (more…)

MAD MONSTER OF TAX AMENDMENTS!

Low arousal Indians endure injustice & unfairness with feudalistic servility & fatalistic resignation said Palkhiwala

             The record number of 113 clauses of the Finance Bill, 2012, proposing a plethora of amendments in Direct Taxes and so many of them even with retrospective effect, reminds me of the unforgettable words of my Budget Guru and India’s legendary jurist and tax expert the Late Nani Palkhiwala, through which he had aptly analyzed the maddening malady of legislative amendments that has grappled our nation.  

             “The tragedy of India is the tragedy of waste – waste of national time, energy and manpower. Tens of millions of man-hours, crammed with intelligence and knowledge of tax gatherers, tax-payers and tax advisers are squandered every year in grappling with the torrential spate of mindless amendments. The cardinal error of our times is to mistake amendment for improvement and change for progress. The Finance Ministry has become almost pathological in its ‘change mania.’ A stable fiscal policy is to a nation what a stable family life is to an individual. But stability is anathema to the North Block,” Nani sadly lamented. (more…)

MAJOR TAX SAVING FOR MINOR’S INCOME

Using the medium of a discretionary trust, you can plan to save a decent tax of Rs.2,06,000 on income of Rs.10,00,000!

              Section 64(1A) of the Income-tax Act provides that “in computing the total income of any individual, there shall be included all such income as arises or accrues to his minor child.” With a view to ensure building up income for minors without attracting the above provisions relating to clubbing of income, one of the effective tools is a Private Discretionary Trust.

WHAT IS A DISCRETIONARY TRUST?

              A private discretionary trust is a trust wherein the beneficiaries and/or their shares in the income and assets of the trust are not specified in the trust deed. The trustees of such a trust are given full discretion in deciding these matters. The provisions of Section 164 of the Income-tax Act which govern the taxability of a private discretionary trust specify that income-tax shall be charged on the income of the trust at the ‘maximum marginal rate’ (currently 30.9%). (more…)

PAVING FOR DOUBLE TAX SAVING!

ITAT Ahmedabad holds capital gains of Rs.1 crore exempt u/s.54EC, where investment is split in two financial years

             Section 54EC of the Income-tax Act provides for exemption of taxable long term capital gains (LTCG) arising from the transfer of an asset, to the extent the amount of such gains are invested in notified bonds within a period of six months from the date of transfer. Notified for this purpose are the three year bonds issued by National Highways Authority of India (NHAI) and Rural Electrification Corporation (REC).

            Until FY 2006-07, there was no monetary ceiling prescribed in regard to investment in such capital gains bonds and hence a taxpayer could virtually invest his entire taxable gain, even running into crores of rupees, in these bonds and avail the benefit of 100% exemption under Section 54EC.

            However, the Finance Act, 2007 amended Section 54EC so as to provide that this exemption would be available subject to the condition that the investment in the notified capital gains bonds made on or after 1st day of April, 2007 does not exceed Rs.50 lakhs during any financial year. (more…)

CALL FOR CRUSADE AGAINST GAAR!

Even as Parliamentary Panel frowns on the notorious DTC provisions, Budget gives it a mischievous back-door entry!

             While presenting his Budget 2012, the Union Finance Minister referred to the ‘Report on the Direct Taxes Code (DTC) Proposals’ received from the Parliament’s Standing Committee on Finance and observed that, “we will examine the Report expeditiously and take steps for the enactment of DTC at the earliest.”

             However, it has come as a huge shock that grossly ignoring the critical concerns of the Committee in regard to the ‘General Anti Avoidance Rules’ (GAAR) and its strong recommendations for thoroughly amending GAAR, the original GAAR proposals as packaged in the DTC Bill have been most mischievously given a back-door entry in the Income-tax Act through clause 40 of the Finance Bill, 2012. (more…)

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