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Seeks more rational exemptions, liberal tax rates, greater accountability in administration & taxpayer friendly regime!

                   “We want taxpayers to celebrate DTC. I can assure you that our committee will make sure that the Direct Tax Code (DTC) is made as taxpayer friendly, as judicious and as equitable as possible,” assured Yashwant Sinha, former FM and Chairman of the 31 member Parliamentary Standing Committee on Finance, while responding to the presentation made by your columnist on the occasion of the interactive session on the ‘Challenges of Direct Tax Code’ held at Ahmedabad in May, 2011. It is indeed heartening for the taxpayers at large that the spirit of this positive assurance stands reflected in ample measure in the 364 page Report of the Parliamentary Panel on DTC presented to the Speaker on March 9, 2012. (more…)


DTC virtually beyond repair, present Income-tax Act should be revised to achieve the underlying objectives!

The Direct Taxes Code (DTC) Bill, 2010, was presented in the Lok Sabha on the 30th August, 2010, to replace the existing Income tax, 1961 and Wealth tax Act, 1957 with effect from 1.4.2012.

Tax law, which has been subject to extensive review by the Indian Parliament every year and in-depth scrutiny of the Supreme Court, High Courts and Tribunals, for nearly five decades, is now proposed to be crucified by a legislation, the draft of which has been prepared by a bunch of North Block officials with a bureaucratic mindset.

Though the preamble to the draft claims to have accommodated public opinion raised within a span of only three months, it is a mere eyewash, since the public could hardly have figured out, leave aside digest or comprehend several grave implications. Moreover, no debate was ever sought on whether there was at all a need for a fresh legislation and if there should be one, what should be its shape and frame. To a wrong question, answer could never possibly be right. “You can’t depend on your judgment when your imagination is out of focus”- Mark Twain.



Harsh Taxing Provisions & Tinkering with Residential Status

under the Code are bound to irk the Global Indian Community!

Amrish Amin, a Non Resident Indian (NRI) settled in U.K. earns interest income of Rs.3 lakhs on his Non Resident Ordinary (NRO) Account Bank Deposit in India in the current FY 2010-11. Enjoying his personal exemption limit of Rs.1,60,000 and the eligible deduction of Rs.1,00,000 under Section 80C, Amin is comfortable paying income-tax of Rs.4,000 in the first slab of 10% on his effective taxable income of Rs.40,000.

A huge shock awaits Amin and some millions of NRIs, in regard to taxation of their interest and income from non-Equity Oriented Funds earned in India, proposed to be treated under the draft Direct Tax Code as ‘income from special sources.’

In 2012-13, on the same interest income of Rs.3 lakhs, Amin will be required to pay a hefty tax of Rs.60,000 at the flat rate of 20%, without being eligible to claim any basic exemption or other deduction, as provided under Part III of the First Schedule to the Code.



‘Taxing Times’ Crusade Creates A Historic Impact

As FM Assures ‘No New Code Without Consensus!’

“DTC is not Bhagwat Gita

which cannot be changed”

 – Pranab Mukherjee in Lok Sabha (more…)

Looking at London, Talking to Tokyo!

The Code boasts of incorporating simplicity, well accepted principles  & best international practices.’

Does it achieve or deceive on this count?


Tax Axe To Chop Charities Too!

Religion & Politics Sheltered As Taxman’s Holy Cow!

Complex Provisions To Perplex Charities

New Jargon – Fresh Norms

  •  Charitable trust to bear the new identity of ‘Non-Profit Organisation (NPO).’  
  • Charitable purpose replaced by the new phrase ‘permitted welfare activity (PWA).’ 
  • Fresh procedure for NPO registration to be undertaken by all charities. 
  • Different & elaborate norms for computing gross receipts and outgoings. 
  • Current benefits of accumulation of income, upto 15% for an indefinite period, and upto any amount for five years, not available under DTC. 
  • Deduction at specified rates (mostly 50%) to be allowed to donors of eligible NPOs. 

15% Tax on eligible NPOs – 30% Tax on other Charities

  • No more tax exemption for income of charities. Even current basic exemption upto Rs.1,60,000 not applicable under DTC. 
  • Taxable surplus of all eligible NPOs (fulfilling as many as 14 prescribed conditions) to be taxed at flat 15%.  
  • All other trusts, though doing charitable work, to attract flat 30% tax on their income as an AOP. 

Several Current Charities may not qualify as eligible NPOs

  • Specific community trusts and associations for benefit of their members, though currently eligible for exemptions as charities, not eligible to be registered as NPOs under DTC. 
  • Where any business (not incidental to PWA) is held under the charity, even though its business income is applied only for PWA.


Minimum Tax brings Maximum Woes!

MAT At 2% On Value Of Gross Assets Can Spell Corporate Doom!

Companies floored on MAT by hard tax punch!

  • Minimum Alternate Tax (MAT), to be paid at 2% on the gross value of assets of a company, presumes 8% average rate of return on assets, an impractical economic assumption in several cases. 
  • While Code aims at encouraging investment-linked tax incentives, the proposed MAT will be a huge disincentive for capital investment. 
  • Capital intensive projects, infrastructure ventures, undertakings in gestation period, loss making concerns, sick units, investment companies and even companies under liquidation, to be hit hard by levy of MAT. 
  • No scheme for grant of MAT credit, both harsh and iniquitous. 
  • No developed country in the world today (last being Mexico, who also scrapped it in 2007) levies such a naughty tax. 
  • No room for MAT in the new tax regime abolishing all profit-linked incentives.


NRIs treated as Not Required Indians

Harsh, Illogical & Discriminatory Taxing Provisions For NRIs!

Proposals That Will Hurt The Global Indian Sentiment

Flat Rate of Tax

  • 20% flat tax on interest & other investment income.
  • 30% flat tax on all capital gains.
  • Apart from 20% & 30% TDS on above, TDS at a baffling rate of 35% prescribed on all residual income.

No Personal Exemption

  • No personal exemption or deduction allowed in computing the above income treated as ‘income from special sources.’

Weird Interpretation

  • Poor drafting leads to such a weird interpretation that transfer of a capital asset may attract 30% tax on gross sale consideration.

What a Discrimination?

  • Ironical but true! Non-Indian sports-persons, say Ricky Ponting or Shoaib Akhtar, required to pay a concessional tax of 10% on their game, advertisement and column earnings in India, thus enjoying a more privileged tax status than our own sons of the soil living abroad.


Now no Capital Gain without Tax Pain!

End Of Tax Honeymoon For Market Investors!

Understanding The New Capital Gains Regime

New Rules for Computation

  • Present distinction between long term and short term gains to be eliminated.
  • Current exemption for capital gains arising from transfer of personal effects and agricultural land beyond specified urban limits to continue.
  • Base date for computing cost of acquisition shifted from 1st April, 1981 to  1st April, 2000. 
  • Indexation benefits can be availed for all assets held for atleast one year.  

No More Tax Concessions

  •  Zero tax on STT paid long term capital market gains and 15% concessional rate for short term market gains to end on 31st March, 2011. 
  • No more concessional rates of 10%/20% for taxing specified long term gains. 
  • All capital gains to be taxed at the taxpayer’s applicable marginal rate. Securities Transaction Tax (STT) to be simultaneously eliminated.

 Exemptions Abolished & Redesigned

  • Present exemption u/s. 54EC via investment in specified bonds abolished. 
  • Current exemptions u/s. 54, 54B and 54F attempted to be redesigned under a new scheme of relief for roll over on the basis of a given formula.  (more…)

Minus Social Security : EET=Inequity

Hard Hit Small Salaried Deserve Lower Starting Tax Rates!

Both Employment & Retirement Made More Taxing!

  • Allowances & Perks – no longer exempt: House rent allowance (HRA), leave travel concession (LTC), medical reimbursement, value of free or concessional medical treatment and children’s education & hostel allowance.
  • Puny deductions that will still continue: Professional tax paid, transport allowance to the extent prescribed and prescribed special allowances to meet expenses incurred for official duties.
  • Retirement may not be as relaxing: Leave encashment on retirement, to be fully taxable.
  • VRS compensation, death or retirement gratuity and commutation of pension to be exempt, only if deposited in a Retirement Benefit Account (RBA).
  • However, any amount drawn from RBA (including PF contributions and accretions after 1st April, 2011) under any circumstances to be treated as taxable in the year withdrawal. (more…)
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