THE FM INTRODUCED NEW DIRECT TAX CODE WITHIN 45 DAYS AS PROMISED CA SHRUTI SHAH,

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1 THE FM INTRODUCED NEW DIRECT TAX CODE WITHIN 45 DAYS AS PROMISED

2 The GOAL Consolidate and amend all direct taxes : income tax, DDT, wealth tax and gift tax Simplify language to ensure that the law can be reflected in the return form Reduce scope for litigation Flexibility in accommodating changes without need for frequent amendments Eliminate regulatory functions Provide stability

3 Classification of INCOME ORDINARY SOURCE Income from Employment House property Business Income Capital gains Residuary SPECIAL SOURCE Capital gains on equity & equity oriented funds Income of any other nature.

4 Tax SLABS Income up to Rs10lakh taxed at Income from Rs10lakh to Rs25lakh taxed at Income above Rs25lakh taxed at 30% 10% 20% 30%

5 Bonanza for INDIVIDUALS Scope of income expanded to include value of perks, gift, profits in lieu of salary & capital gains but excludes farm income. Gross salary to form part of the tax base on due or receipt basis, whichever is earlier and will include value of perquisites and profit in lieu of salary.

6 Bonanza for INDIVIDUALS continued Wealth to be taxed on a net basis; assets value less debt in respect of that asset; to include all assets including shares and FD, amount in excess of Rs 50 crore to be taxed at 0.25%.

7 Incentives for SAVINGS Deduction in respect of savings proposed to be hiked to Rs 3 lakhs from current Rs1 lakh, but tax breaks on housing knocked off. All long-term savings schemes to move to an EET regime of taxation. Deduction of Rs1.5lakh allowed on interest paid on home loan seems to have been scrapped. Dividends will continue to be tax-free in the hands of investors.

8 Other DEDUCTION Medical insurance premium up to Rs15,000 (Rs for senior citizen) Medical treatment or maintenance of disabled dependent up to Rs50,000 Medical treatment for specified diseases for self and dependents up to Rs40,000 Handicapped up to Rs50,000 and Rs70,000 in case of severe disability Interest on loan taken for higher education

9 Other DEDUCTION Rent paid for residence restricted to Rs2000 per month Donation to certain NGO s Donation towards scientific research at 125% Tuition fees for children education. Royalty income of authors as well as on patents for individual residents up to 3 lakh.

10 EET benefits Retirement saving taxable on withdrawals. Benefits such as Gratuity payment made to employees on change of jobs will be allowed tax exemption only if it is invested in retirement fund. Grand Fathering clause Withdrawals of any amount of accumulated balance as on 31 st March,2011 not be subject to tax. Rollover not subject to tax.

11 Lower taxes for CORPORATE Corporate tax rate to drop to 25% from 30%, no surcharge/cess. MAT to be levied on gross assets as against book profits now, 0.25% for banking companies,2% for others and also, no MAT credits are proposed MAT even on loss making companies Anti-abuse rules. Curb-treaty shopping Certainty in tax treatment of cross border M&A deals Business losses will be allowed to be carried forward indefinitely. Profit-linked incentives to give way to investmentlinked incentives.

12 Cheer for MARKETS Abolition of distinction between long-term and short-term capital gains to encourage trading. Introduction of capital gain tax Financial intermediaries such as Mutual Funds, venture capital funds and life insurance companies will have a pass through status. Income they received will be tax free. Securities transaction tax abolished.

13 Good intention have to be backed by IMPLEMENTATION Mode of taxation perquisites has not been prescribed, leaving us again at the mercy of the income tax rules Maximum penalty down to 2 times tax amt. Gross income from house property will now be allowed a reduced ad-hock deduction of 20%

14 Sectors enjoying TAX HOLIDAYS to take a hit A foreign company having even part control and management in India would be considered as resident in India, leading to world taxation It proposes a corporate tax rate of 25% for domestic as well as foreign companies Foreign companies would also be subjected to additional Branch Profit Tax at 15% Dividend distribution tax would continue to be payable by domestic companies at 15%.

15 Sectors enjoying TAX HOLIDAYS to take a hit Profit on sale of business capital assets or gains derived from slump sale could be taxed as business profits Quasi-transfer pricing provisions vis-à-vis transaction between two Indian affiliates, which could lead to litigation Tax payer would be allowed to recover all capital and revenue expenditures except for expenditure on land, goodwill and financial instruments and shall be liable to income tax and profits earned after such recovery Loss on sale of business capital assets not allowable, to be only depreciable.

16 New CAPITAL GAINS regime Distinction between long-term and short-term capital gains abolished. Capital gain (losses) will be included in the total income of the financial year in which the assets is transferred not when consideration received. Rollover benefits for capital gains tax exemptions trimmed to only one residential house Cost of acquisition/improvement nil if not determinable. Shifting of base year from

17 Other IMPROVEMENTS Financial year to replace concepts of Previous year and Assessment year A new tax regime for all institutions carrying on charitable activities. Change in the definition of Assessee to facilitate refund of TDS, allow a track record of filling for those not required to file return. General anti-avoidance rule introduced to combat tax avoidance.

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