Direct Tax Code in India

Background: Present income-tax law in India of 1961 which replaced 1922 law.
Draft Direct Tax Code (DTC) 2009 unveiled in August 2009 for
Simplification / keeping pace with changing business landscape.
Indian Government received more than 1,600 representations on
DTC 2009.
Revised Discussion Paper (RDP) released in June 2010 on
11 Specific issues.
DTC tabled in the Indian Parliament on August 30, 2010.
After clearance from the Parliamentary Standing Committee, DTC
2010 may be passed in the Winter Session.
The DTC 2010 proposed for effective from FY commencing April
1, 2012.
The DTC 2010 to be effective from FY commencing April 1,
2013.

INTRODUCTION AND OVERVIEW:A consolidated legislation for Direct Taxes in the country, viz., the Income-tax Act,
1961 and Wealth-tax Act, 1957, titled Direct Taxes Code Bill, 2009 was released
by the Honorable Finance Minister of India, Shri Pranab Mukherjee, for public
debate on 12th September, 2009.
Its purpose, according to the Finance Minister is to improve the efficiency and
equity of our tax system by eliminating distortions in the tax structure, introducing
moderate level of taxation and expanding the tax base.
Apparently, the Code is intended to reform the two taxes and enact a unified Code.
No express terms of reference were given to the body of few officers working in
the Department of Revenue, who were entrusted with the task of visualizing the
future tax laws of the country.

Therefore, what is proposed to discuss here is whether the enactment of the Code
would usher in any meaningful reforms of the direct taxes and ensure that the same
would play meaningful and positive role in giving a boost to the countrys
economic development, rapid growth of GDP and GDP tax ratio, accelerate flow
of foreign exchange, project India as a strong economy, better taxpayers-tax
administration relationship, increase voluntary compliance and tax bases and
secure many similar other such objectives.
The first draft of the Direct Taxes Code was released in August, 2009 along with a
Discussion Paper for public comments. Thereafter, a Revised Discussion Paper
was released in June, 2010. Based on the comments received, a Bill named
The Direct Taxes Code, 2010 has been introduced in the Parliament. The usual
convention of the word Bill being the part of the name of the Bill has been
departed from. The proposed name (i.e. Short Title) of the law to be enacted
is again The Direct Taxes Code, 2010. Again the word Act is not part of the
proposed Short Title as is the usual convention in India. When enacted into a law,
the Code will replace both the Income-tax Act, 1961 (the Act) and the Wealth
Tax Act, 1957 (the 1957 Act). The salient features of the Code vis--vis the
existing provisions of the Act and the 1957 Act are set out in the following
paragraphs.

STRUCTURE OF THE INCOME TAX ACT, 1961, WEALTH TAX ACT, 1957
AND THE PROPOSED DIRECT TAX BILL, 2010.
Structure of the existing Income Tax Act, 1961, the Wealth Tax Act, 1957 and the
proposed Direct Taxes Code Bill, 2010 is as follows:
A. Income Tax Act, 1961

The Income Tax Act 1961 lays down the frame work or the basis of charge and the
computation of total income of a person. It also stipulates the manner in which it is
to be brought to tax, defining in detail the exemptions, deductions, rebates and
reliefs. The Act Page 9 defines Income Tax Authorities, their jurisdiction and
powers. It also lays down the manner of enforcement of the Act by such authorities
through an integrated process of assessments, collection and recovery, appeals and
revisions, penalties and prosecutions. The Act has been amended annually through
the Finance Act. Income Tax Act, 1961 comprises of
(i) 23 Chapters
(ii) 656 Sections
(iii) 14 Schedules
B. Wealth Tax Act, 1957
Wealth tax, in India, is levied under Wealth-tax Act, 1957. Wealth tax is a tax on
the benefits derived from property ownership. The tax is to be paid year after year
on the same property on its market value, whether or not such property yields any
income. Similar to income tax the liability to pay wealth tax also depends upon the
residential status of the assessee. The Wealth Tax Act, 1957 comprises of
(i) 8 Chapters
(ii) 47 Sections

C. Proposed Direct Taxes Code Bill, 2010

The Direct Taxes Code Bill, 2010 consolidates and integrates all direct tax laws
and replaces both the Income-tax Act, 1961 and the Wealth-tax Act, 1957 by a
single legislation. The provisions applicable to a taxpayer are in the main clauses

while complex computations and exceptions have been placed in Schedules. The
proposed DTC Bill, 2010 comprises of
(i) 22 Chapters
(ii) 319 Clauses
(iii) 22 Schedules..
OBJECTIVES OF THE CODE
The Code seeks to consolidate and amend the law relating to direct taxes, that is,
income-tax, dividend distribution tax, fringe benefit tax and wealth-tax, so as to
enable to establish an economically efficient, effective and equitable direct tax
system which will facilitate voluntary compliance and help increase in the taxGDP ratio. Another objective is to reduce the scope for dispute and minimize
litigation.
SALIENT FEATURES OF CODE
The following are the salient features of the Code
Single code for direct taxes;
Use of simple language - as to convey with clarity the intent, scope and
amplitude of the provisions of law;
Reducing the scope of litigation - by avoiding ambiguity in the provisions so
that the taxpayer and tax administration are ad idem on the provisions and the
assessment results in a finality;
Flexibility- by reflecting the general principles in the statute and leaving the
matter of details to rules, Schedules so that changes in the structure of growing
economy are accommodated without resorting to frequent amendments;
Ensuring that the law can be reflected in a Form - by designing the structure
of tax laws so that it is capable of being logically reproduced in a Form;

 Consolidation of regulatory functions - provisions relating to definitions,

incentives, procedure and rates of taxes have been consolidated for better
understanding of the legislation by rearranging various provisions to make them
consistent with general scheme of the Act;
Elimination of regulatory functions by withdrawing the regulatory function
of the taxing statute;
Providing stability by prescribing the rates of taxes in the Schedule of the
Code instead of being done annually in the Finance Act.

Direct Tax vs Indirect Tax

Direct Tax
You pay it on your income and property.
1. Income Tax

2. Corporate Tax
3. Wealth Tax
^ Direct Tax Code (DTC) seeks to consolidate them all in one book.
Indirect Tax
You pay it on the goods and services purchased.
1. Sales Tax
2. VAT
3. Customs duty
4. Excise Duty
5. Service Tax etc
^ Goods and services Tax (GST) seeks to combine them all in one book.
Redistribution of wealth
Direct Tax follows the principle of redistribution of wealth
in short it means:
Tax the rich and use the money for the welfare of poors.
You tax middle-class and rich-class, use that money to provide subsidized
wheat for poor people = wealth is redistributed.

Why do we need Direct Tax Code?

(just covering the brief highlights without getting into details)
All In ONE code
Right now weve different Codes for different taxes for ex.

 Under DTC, all the direct taxes will be brought under a single Code
Simplify the language for aam-aadmi
So that even non-experts can interpretate the rules on their own, and no
need to consult a tax-lawyer or Chartered Accountant every now and then.
Provide stability in direct tax rates
At present, the income tax slabs and rate are changed in every budget,
thus keep keeping people on their toes.
Therefore, People have to keep making rounds here and there to taxconsultants and insurance agents to save themselves from higher-tax
slabs, every year.
DTC will provide stable brackets and rates for a longer time, (ofcourse
they can be amended from time to time.)
Increase Tax to GDP ratio.
It means the ratio of tax collection against the national gross domestic
product (GDP).
Right Governments tax collection is not optimum, because people get so
many tax-exemptions.
Under DTC, Men and women are treated same. Women would cease to
enjoy income-tax exemptions
Only senior citizens will get extra relief with tax exemption
Tax exemption on LTA (leave travel allowance) is abolished.
DTC removes most of the categories of exempted income. Unit Linked
Insurance Plans (ULIPs), Equity Mutual Funds (ELSS), Term deposits,
NSC (National Savings certificates), House Loan principal repayment etc.

 Thus, Governments tax collection would increase, because there are less
exemptions available.
Plus, Government needs truckload of money for their inefficient schemes
such as MNREGA and Food security bill, otherwise problem of fiscal
deficit. In that sense too, DTC is very important for them.

Rates under DTC:

10 per cent tax on annual income between Rs. 2-5 lakh,
20 per cent on between Rs. 5-10 lakh,
30 per cent for above Rs. 10 lakh
Other provisions of DTC
[Not covering everything in detail]
Tax exemption on Education loan is continuing.
Before DTC, if you own more than one property, there was provision for
taxing notional rent even if the second house was not put to rent. But,
under the Direct Tax Code 2010, such a concept has been abolished.
Wealthtax cutoff increased
Right now youve to pay additional tax if you own farmhouses, shopping
malls, jewellery, vehicles etc wealth above Rs.30 lakh.
Under DTC, youve to pay wealth tax only if you own assets worth to Rs
50 core or above.
Corporate tax rate 30% (no surcharge or cess)
[Earlier they had to pay educational cess.]

 means now theyve to pay less because there is no cess!

Confused about what is Cess Then click me!
Combine this with Stability point explained above, and Foreign players
would feel attracted to invest in India.

Highlights of the Direct Taxes Code bill

Common threshold Income Tax exemption limit for men and women
proposed at Rs. 2 lakh per annum (proposed), up from Rs. 1.8 lakh

10 per cent tax on annual income between Rs. 2-5 lakh, 20 per cent on
between Rs. 5-10 lakh, 30 per cent for above Rs. 10 lakh

Tax burden at highest level will come down by Rs. 41,040 annually

Proposal to raise tax exemption for senior citizens to Rs. 2.5 lakh from Rs.
2.4 lakh currently.(NOTE:- Union budget 2011-12 already has proposed it.)

Corporate Tax to remain at 30 per cent but without surcharge and cess.

MAT to be 20 per cent of book profit, up from 18.5 per cent.

Proposal to levy dividend distribution tax at 15 per cent.

Exemption for investment in approved funds and insurance schemes

proposed at Rs. 1.5 lakh annually, against Rs. 1.2 lakh currently

Proposed bill has 319 sections and 22 schedules against 298 sections and 14
schedules in existing IT Act.

Once enacted, DTC will replace archaic Income Tax Act.

However, many provisions in Income Tax Act will be a part of DTC as well.

Mutual Funds/ULIP dropped from 80C deductions : Income from equityoriented mutual funds or ULIP shall be subject to tax @ 5%

Fringe benefits tax will be charged to the employee rather than the employer.

]Salient

DTC removes most of the categories of exempted income. Equity Mutual

features

Funds (ELSS), Term deposits, NSC (National Savings certificates), Unit Linked
Insurance Plans(ULIPs), Long term infrastructures bonds, house loan principal

repayment, stamp duty and registration fees on purchase of house property will
lose tax benefits.

Only half of Short-term capital gains will be taxed

Surcharge and education cess are abolished.

For incomes arising of House Property: Deductions for Rent and

Maintenance would be reduced from 30% to 20% of the Gross Rent. Also all
interest paid on house loan for a rented house is deductible from rent.

Tax exemption on Education loan to continue.

Tax exemption on LTA (leave travel allowance) is abolished.

Taxation of Capital gains on listed securities held for more than a year will
not be taxed. If held for less than a year, it will be taxed at 5%, 10% or 15%

Tax on dividends: Dividends will attract 5% tax.

Under Sec 80C deduction of up to 1.5 lakh allowed

a) INR Rs.1 lakh on Pension, PF and Gratuity funds,

b) Up to 50,000 for expenditure on tuition fees, pure life insurance premium and health cover

Medical reimbursement : Max limit for medical reimbursements has been increased to rupees 50,000 per
year from current rupees 15,000 limit.

Tax Concessions for the Small Scale industries:

Brief History and Revenue Cost
Concessions were provided to the small scale sector in India formany years in
income tax as well as excise duties. New industrial undertakings coming under the
category of small scale defined in termsof investment in plant and machinery were
allowed tax holiday for a specified number of years subject to certain conditions,
such as location in rural areas, and so on. Whereas the income tax holiday was
granted to new undertakings only if they were engaged in producing goods in
what was called the priority list, in the case of new small scale enterprises no
such restriction applied. Such preferential treatment for small scale units occured
in many of the tax benefits extended in income tax to promote new industries,
technological advancement, and development of backward regions. However, as
mentioned above, these have largely been withdrawn or are on their way out.
Concessions in excise duties, too, were provided to the small scale right from the
inception of support policy for the small and tiny sector as a strategy of
development and employment promotion. Excise concessions provided a potent
instrument for influencing the pattern of production and technological choices in
favour of employment intensive techniques because of the wide coverage of union
excises and their impact on the relative prices of outputs as also inputs. In order to
promote employment, products of several industries were exempted from excise if
produced without the aid of power. Items so exempted included confectionery,
food products, vegetable and non-essential oils, paper and paper board, manmade fiber and yarn, footwear, steel furniture, bolts, nuts etc. In the case of a few
tariff items like cotton fabrics, woolen fabrics, and man-made fabrics, exemption

was available in respect of a few sub-items only. In the case of goods brought
under taxation in 1975.
Revenue Cost of Excise Concessions: An Estimate
Even though largely simplified, the exemption granted to small scale producers is
still substantial and the revenue cost thereof is not so negligible. However, an
evaluation of the costs and benefits of these exemptions presents formidable
difficulties owing to (i) the acute paucity of requisite data; and (ii) simultaneous
operation of other benefits for the small scale sector, making it problematic to
isolate the influence of one to the exclusion of others. The revenue cost of tax
concessions is not easy to figure out, primarily for the reason that the data required
for such an exercise is not available. The number of small scale units availing the
benefit of exemption and the total value of their tax exemption clearance is not
known. As just mentioned, units having less than 1 crore clearance the tiny ones
do not have to register with the Central Excise department. Nor are they required
to file any declaration about their production or clearance. It appears that the excise
authorities do carry out some survey from time to time but the figures of tax
concessions availed or worked out therefrom seem to be grossly unrealistic. The
reasons for such skepticism are set out below along with an alternative measure of
the revenue cost of SSI excise exemption. According to official estimates12 the
SSI sector accounts for about 40 percent of GDP from manufacturing in the Indian
economy. Industry in turn accounts for 29 percent of GDP. Thus, in terms of
contribution to GDP, the share of SSI works out to 40 percent of 29 percent or 11.6
percent. It would however not be correct to take this proportion of GDP in full as
constituting the base for excise taxation. It is necessary to exclude the value added
of tiny or village units which are out of the tax net in any case and also the value of
products which necessarily have to be left out of taxation, like, exports. Allowance
has also to be made for the credit for tax on inputs produced by small scale

units which are used by large scale producers and get taxed in the hands of the
latter. In deriving the taxable base in the SS sector, it is necessary to derive the
value added in the tiny sector comprising khadi and village industry units and the
tiny units of SSI (with fixed investment less than Rs 25 lakh13). This is because
these units cannot and should not be brought under the tax net. No data on the
production of these units are however, available. Using the figures available for
production of khadi and village industries14 and the share of tiny units derived
from the Third Census of Small Scale Industries for the year 2001-02, we arrive at
a figure for output of these units Rs. 7,685 crore in a total production of Rs.
52,504 crore by SSI units as a whole. While the former is assumed to represent
fully the value added of the SSIs, since tax paid purchases by KVIC is minimal, the
value added by other small scale units may be arrived at by looking at the ratio of
value added to output of the small scale sector. This turns out to be 35 percent.15
With GDP of Rs. 2,082 thousand crore in 2001-02, these work out to 2.9 percent of
GDP. The revised base for excise duty for SSI production thus comes to 8.7
percent of GDP. The base so derived has to be adjusted further for the following
components to arrive at the potential base for excise revenue from value
added by small scale producers:
value added in exempt goods
value added in goods that are exported
value added in products that are used mainly as intermediate goods.
These need to be excluded as they get taxed at the subsequent stages.
These three categories tend to overlap. Corrections are needed to ensure that
double counting does not occur. For this purpose the following identities are kept
in view:

 Total value added = value added in exempt goods + value added in nonexempt intermediate goods + value added in non-exempt final use goods,
and
Value of exports = exports of exempt goods + exports of non-exempt
intermediate goods + exports of non-exempt final use goods
Information in this regard is not available individually for any of these categories.
The only source of information for the shares of each of these categories is the
Third All India Census of Small ScaleIndustries 2001-2002 (final results).16 The
actual figures from this census are however not used here since the totals presented
from this census do not match even in dimensions the figures reported earlier for
this sector. Exports for instance are recorded at Rs. 14,199 crore in the census. On
the other hand, figures from other sources suggest that SSI sector contributes about
35 percent of total exports of the country, constituting 4 percent of GDP. This
translates into about Rs. 75,000 crore for the year 2000-01.17 According to sample
survey for 1999-00, exports were of the order of Rs. 29,900 crore. These
differences are attributed to the relatively smaller coverage of the SSI census
conducted by the Small Industries Development Organisation (SIDO).18
Therefore, for the aggregates, the figures provided in the Handbook of Industrial
Policy and Statistics, 2002 and further updates from the SIDO website are used. It
needs to be noted here that the definition of SSI in these surveys covers units
which have investment in plant and machinery of less than Rs. 1 crore. (Going by
the second SSI census, output capital ratio on the average is 2, suggesting that the
turnover of these units would be in the range of Rs. 2 crore at the most). The ratios
for the other categories in the identity 1 above are derived from the tables provided
in the report. These are reproduced in the table presented below.

Introduction:Small businesses having a turnover of up to Rs 1 crore could see a substantial

reduction in their tax liability and compliance costs once the recently unveiled
direct tax code comes into effect. The new code has proposed to enhance the limit
for availing presumptive taxation option to businesses with a turnover of up to Rs 1
crore from the present Rs 40 lakh.
Under a presumptive taxation regime, small and medium enterprises (SMEs) can
opt for a flat tax on their turnover instead of paying taxes based on a detailed
assessment as per the tax laws. In the July budget, finance minister Pranab
Mukherjee had expanded the scope of presumptive taxation to all small businesses
with a turnover of up to Rs 40 lakh for the 2009-10 fiscal. Under the new direct tax
code, any business having a turnover of up to Rs 1 corer can pay tax at the rate of
8% of the total turnover or gross receipts. Businesses that opt for a presumptive tax
regime are not required to maintain the books of accounts, thereby bringing down
their cost of compliance significantly. Moreover, they can pay their entire tax
liability at the time of filing their returns, that is, they do not have to pay periodic
advance taxes. With a higher limit, more businesses can take the advantage of this
regime. However, professionals such as chartered accountants will not be eligible
for this regime. The presumptive taxation regime will also continue for businesses
that operate in the areas of civil construction, hiring and leasing of light and heavy
goods vehicles, operation of ships, aircraft, erection of plant and machinery for
power projects and prospecting or extraction or production of mineral oil. To avail
the benefit, goods transporters must keep less than 10 vehicles. The benefit could
also be availed by shipping and aircraft operators, contractors for power plants and

mineral oil, but only if they are non-residents as per the tax laws. For shipping and
aircraft operators, the rate applicable would be 7.5% and 5% of the transportation
charges respectively. In the case of contractors, the rate would be 10%.
Impact of Direct Tax Code on small companies:Small Scale industries are an important and crucial segment of the Indian industry
sector. The Indian Government has accorded high priority to this sector as it plays
a vital role in balanced and sustainable economic growth. In the current context of
rapid economic development, one must view taxation benefits in relation to the
need for increasing investment in small-scale and ancillary industry. Here are a few
key proposals of the Direct Tax Code, 2010, (DTC).
Income Expense Model:In terms of the DTC, besides the presumptive and special taxation regimes for
specified businesses, the profits from all other business will be equal to the gross
earning from the business minus the amount of allowable deduction.
Gross earnings from the business:All accruals and receipts from the business, besides those derived from business
assets; make up the gross earnings of the business of the tax payer. For instance,
profit on sale of an undertaking under a slum sale; advance or security deposit on a
long term lease of business assets; or reimbursement of any expenditure etc.
Allowablededuction:Generally, all operating expenses incurred essentially for all business purposes are
deductible from gross total income. The requisite for deductibility of expenses is
that expenses must be: wholly and exclusively incurred for business purposes; and

incurred or paid during the previous year and supported by pertinent paper and
records. Expenses of a personal and capital nature, remunerations payable to a non
working participant, any unascertained liabilities etc. are not deductible.
Expenditure incurred by way of land revenue, local rates or municipal taxes, sales
tax duty, cess, fees, bonus or commission to employees, leave encashment id
deductible in the financial year or by the due date of filing the return of tax bases
for that financial year. Otherwise it will be allowed in the financial year in which it
is actually paid. Expenditure incurred by way of interest on loan or borrowing from
permitted financial institutions is deductible in the year of accrual or payment,
whichever is later.
Depreciation business capital assets (including acquired by the lessee under
financial lease) is calculated on the declining balance method and is based on the
block of assets. The block of assets concept suggests aggregation of all assets
with the same depreciation rate into a common block for calculation of
depreciation. Depreciation is computed at varying rates as prescribed and in the
year of purchase, is available for the full year if an asset is used for more than 180
days. In other cases, depreciation is allowed a half the normal rates.
Besides depreciation, a manufacturer or producer of an article of thing is allowed
initial depreciation on the new machinery and plant (except office appliances and
assets not installed in the office premises, guest house, or any other residential
premises) at the rate of 20% of the original cost of the asset for the full year if the
asset is used for more than 180 days. In other cases, initial depreciation is allowed
at half the normal rates.
Deferred revenue expenditure by ay of non-compete fee, premium paid on lease or
rental asset, amount paid to an employee under voluntary retirement scheme,
expenses incurred by an Indian company wholly and exclusively, preliminary
expenditure, etc., will be allowed deduction in six financial years starting the year

of actual payment, or year of business reorganisation, or year of start of business,

extension of business or set up of new business, as the case may be.

Tax Holidays:The DTC has granted, though restrictive, the tax holidays to all Special Economic
Zone units for the unexpired period out of 15 years, including new such unit that
start operations on or before 31 March 2014. The tax holiday will be computed on
the lines discussed in the above model with two exceptions, namely; capital
expenditure and expenditure incurred prior to the start of the business.
Unfortunately there is no exception for SEZ unites from MAT. Absence of MAT
exemption under DTC would mean that SEZ unites would need to pay a minimum
tax of 20% on book profits.
Business reorganization:It covers transactions between two or more residents involved in amalgamation or
de-merger. Reorganisation, ordinarily being tax neutral is subject to test of
continuity of business, and other conditions are necessary to prevent abuse of the
Code. The successor of business will pass the test of community business if he
1)

Continuously holds at least 75% of the book value of the fixed assets of the

predecessor acquired through business organisation for at least five financial years
immediately succeeding the year in which the business reorganisation takes place
2)

Continues the business of the predecessor for at least five financial years

immediately succeeding the financial year in which the business reorganisation

takes place, and
3)

Meets other such conditions as may be prescribed o ensure the revival of the

business of the predecessor or to ensure that the business reorganisation is for

genuine business purpose.

In the case of de-merger, the resulting company must issue only its equity shares to
the shareholders of the de-merged company on a proportionate basis to avail of tax
exemption and benefit of carry forward of unabsorbed tax losses.

The Committee observes that the Ministrys reasoning for non-inclusion of related
professionals in the definition of accountant is a very strict construction of the
term. In the view of the Committee, the suggested amendment may provide the
Small and Medium Enterprises (SMEs) a wider and cost effective scope for
selection of professionals and will be an important initiative towards simplified tax
compliance regime.

The Finance Minister recently announced the proposed Direct Tax Code effective
April 2011. The code aims at a comprehensive reform in the sphere of personal and
corporate taxation. We would however discuss the impact of the code on common
people. To safe guard the interest of business, industry and workmen there are
number of chambers of commerce and Trade Unions but for common self
employed people and retired people there are none. The Code is open for Public
discourse hence it should be debated, discussed and recommendations need to be
sent to finance Ministry.
There is a great difference between" Code" and the "ACT". The government is
trying to bring in Direct Tax Code" instead of present system of "Tax under
Finance Act".
.The Code would be permanent affairs like "Cr P C" or "I PC". Once tax act is

converted into a code it would generally not be necessary to introduce changes

every year along with budget. This is a reform which the government wants to
bring in for the good of the people. The code has proposed no change in the
exemption limit of the personal tax. It remains 1,60000 for men,1,90,000 for
women and 2,40,000 for senior citizen. Yet percentage of taxation has been
reduced up to income of Rs.Ten lakh.
Prima facie, the tax liability will reduce significantly as the draft code proposes to
tax incomes up to Rs 10 lakh at 10%, that between Rs 10 lakh and Rs 25 lakh at
20% and sum in excess of that at 30%. Now people pay 10% tax only if his income
is less than Rs Three lakh. A person drawing Rs 10 lakh now pays Rs 2.11 lakh as
tax. If Code is implemented he would pay tax amounting to Rs 84,000/- only. Is it
not really good?
But all deduction now under 80 c will vanish as it is available now except for a few
like new pension schemes, LIC etc! This means death nails on small saving
schemes. However deduction under 80 C will be enhanced from Rs one lakh to
Three lakh. This allowance would surely help generation next. But the exemption
on retirement benefits would vanish. The retirement savings will become taxable
on withdrawal, as the draft code has proposed to usher in exempt-exempt-tax
(EET) regime. The PPF and PF will loose all its glamour and tax benefit.
For younger Home owner there is a bad news too, the deduction of Rs 1.5 lakh
allowed on interest paid on home loans appears set to be scrapped. There is no
mention of such a deduction being allowed in the draft code. Young people will not
get tax benefit.

On implementation of the code all perks would considered part of the gross salary
for the purpose of taxation. The impact of that on tax liability of an individual will
be known only when the rules are prescribed by the income-tax department at a
later date.
But there would be equity in the tax system both vertically and horizontally across
all sectors.. The tax treatment of the perks enjoyed by the government employee
and the private sector employee will be the same. Till now government sector was
in advantage!
It has also proposed that benefits such as gratuity payment made to employees on
change of jobs will be allowed tax exemption only if it is invested in a retirement
fund.
The most significant reform would be to bring in the EET regime for all approved
provident funds, approved superannuation funds, life insurance and New Pension
System trust from April 1, 2011 . The PF and PPF were under EEE system now.
This benefit will vanish. The amount would be taxed on the year of withdrawal.
This would hurt middle class and specially retired lot.
However, the proposed code provides that the withdrawal of any accumulated
balance as on March 31, 2011 , from the specified instruments such as PPF will not
be subject to tax. The senior citizen should not withdraw amount in a hurry to save
tax. Because, where ever they invest the interest would be taxed. The money in
PPF should be kept there itself, if possible, as the interest earned would be
exempted from tax. When ever emergent requirement occurs then only it should be
taken out after paying tax .In that event tax incidence would be much lower. Of
course, the rollover from one exempt fund to another fund will not be subject to
tax. This means from PF or PPF you can transfer it to NSC and NPS without

attracting tax...
The code has proposed to continue with other deductions such as medical
insurance premium, medical treatment or maintenance of disabled dependent,
treatment for specified diseases for self and dependents, for the handicapped,
interest on loan taken for higher education, rent paid for residence, donations to
certain non-profit organisations and specified institutions and tuition fees for
children.
The long term capital gain tax on equity based instrument was exempt from Taxes
till now. But if code is approved it would be taxed like short term capital gains.
This would affect the sentiments of investors. Now mutual fund investor would
prefer to invest in dividend mode for the dividend would remain exempt from tax.
It appeared that for middle class two things would adversely effect. The taxation on
withdrawal of PPF and PF and withdrawal of long term capital gains tax. The code
was released for Public response. It would not be wise to sleep over it. Posterity
would blame if present generation do not participate in such reform process for
common people.

Taxation | Tax concessions for small business entities

Eligible small business entities can access a number of tax concessions, including
on:

Capital Gains Tax (CGT)

Income tax

Goods and Services Tax (GST)

Pay As You Go (PAYG) instalments

Fringe Benefits Tax (FBT).

To be eligible you must meet the following conditions:

you are an individual, partnership, company or trust

you are running a business

you have an aggregated turnover of less than $2 million.

You'll need to check if you qualify for the concessions each tax year. Additional
conditions may apply to certain concessions.

The benefits of the concessions include:

a choice to account for GST on a cash basis

simplified trading stock rules

simpler depreciation rules

immediate deductions for certain prepaid business expenses.

Some of the small business concessions were previously available under the
Simplified Tax System (STS). If you were in the STS you can continue to use the
concessions if you meet the eligibility requirements.