2. Backdrop & Objectives of the Code
- Current law Income-tax Act, 1961
- Over 5000 amendments seriously mutilated!
- New Code in the making for four years
- Broad basing the tax base
3. Objectives of the Study
- To understand the Direct Tax Code
- To understand the current income
- tax provisions and compare them
- with Direct tax code provisions.
- To find out the impact of Direct Tax
- Code on individuals tax calculation
- under various situations.
4. Research Methodology
- First we learnt the current income tax provisions and income
tax rules.
- We understood the current income tax provisions and compare
them with Direct tax code provisions.
- We found out the impact of Direct Tax Code on individuals tax
calculation under various situations.
5. Comparison between current tax rates & Direct tax code
slabs Income of Rs. 600000 0 upto 160000 0 upto 160000 14000 10%
(160000-300000) 44000 (160000-1000000) 10% 40000 20%(300000-500000)
0 (1000000-2500000) 20% 30000 30%( 500000-600000) 0 (2500000 or
more) 30% 84000 Total tax 44000 Total tax Saving of Rs. 40000
47.60% 6. Comparison between current tax rates & Direct tax
code slabs Incomeof Rs.2900000 0 upto 160000 0 upto 160000 14000
10% (160000-300000) 34000 10% (160000-1000000) 40000
20%(300000-500000) 300000 20%(1000000-2500000) 720000 30%
(500000-2900000) 120000 30% (25,00,000 or more) 774000 Total tax
454000 Total tax Saving of Rs.220000 28.42% 7. Capital Gains
Comparison
- 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.
- Very disadvantageous for capital gains in case of equity shares
which is zero at present.
8. Case Study of capital Gain
- There will be no distinction in Short term and long term
Capital Gains.
- Mr. Xsold 200 shares of Reliance @ 1100.100 shares were
purchased5 years back by him at indexed cost of 500 and 100 shares
were purchased 9 months back at the cost of 900.Calculate Capital
Gains tax.
9. Calculations of Capital Gains
- 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/-
- Tax is200 shares(1100{selling price} - 900 {cost}) 40,000
Rs.
- Capital Gain Tax is 20% of 40,000 or Rs. 8000/-
10. Income from House Property
- Two major changes have taken place in income from house
property.
- Amount of repairs allowed as deduction has been reduced from
33.33% of rent to 20% of rent.
- Amount of deduction available on interest paid on own house,
not let out is totally eliminated.
11. Case study on income from house property
- 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.
12. Calculations
- Income from Own house Rent 0 (as it is not let out) Interest
paid -45000Total -45000
- Income from house let out Rent 90,000 Repairs 30,000 (1/3 of
rent)Total 60,000
- Total income from house property is 15,000.
13. Calculation
- Direct Tax Code Calculation
- Rent - 0 Interest allowed - 0Total - 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.
14. Income from Salary
- 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
- EET stands for Exempt Exempt Tax
- Whenevermoney 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.
15. Income from Salary & Case study
- EEE stood forExempt exempt exempt
- Whenevermoney 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.
- 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.
16. Calculation under Salary
- 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 whenvere he invests money he gets exemption of Rs.
100,000
- -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 (30,00,000-15,00,000)
There is no clarity on the plans which wont fall under EET
scheme.
17. Case study on Rent free Accommodation
- Mr. X is a government employee.
- He has been provided with the house by the government.
- The rent paid by the government for that house is Rs.1,20,000
per annum.
- The license fees paid for the house is Rs. 10,000.
- His total taxable salary including all the allowances amounts
to Rs. 15,00,000.
18. Calculation
- Under the current tax regime the amount of taxable Rent free
accommodation will be the license fees that is Rs.10,000.
- So taxable amount is Rs.10,000.
- Under the new tax code the taxable amount will be: 10% of
salary that is Rs. 1,50,000 or Rent paid by the government that is
Rs. 1,20,000 whichever is less.
- -So taxable amount is Rs. 1,20,000.
19. Other salient features of the Act
- Capital Gains to be proposed at the normal rates as per the
slab of the assessee.
- Corporate tax will be reduced to 25%.
- TDS of 10% on capital gains.
- Base year shifted from 1/4/1981 to 1/4/2000.
20. Other salient features of the Act
- Capital Gains taxable at 30% for non residents.
- Wealth Tax raised to 0.25% from 1%.
- Wealth tax exemption enhanced from 30 lakhs to 50 crores.
- 80C benefit limit raised to Rs. 3,00,000.
21. Conclusion
- The Direct Tax Code is in line with the objectives.
- It is relatively simpler and better.
- Removal of exemptions has been compensated by reduction in tax
rates.
- It is more advantageous for salaried and tax savings can be as
high as 48%.
22. THANKYOU