TAX

ASSIGNMENT
Submitted by: - Ashish Chopra (5221), - Siddharth Jain (5219), - Vinit Agarwal (5183), - Keshav Saraf (5214), - Devesh Yadav (7134), - Siddharth Sharma (7282)

Direct Tax Code, 2009 vs. Income Tax Act, 1961 with reference to Capital Gains

Differences
Income Tax Act, 1961 Direct Tax Code, 2009

Separate treatment for LTCG and STCG LTCG from listed equity shares and listed MFs is exempt u/s 10(38) if STT is paid. LTCG taxed at 20%. Base year for indexation is 1981-82

Same treatment for LTCG and STCG*

STT is proposed to be abolished. LTCG to be taxed at normal slab rate Base date to be shifted from 1.4.1981 to 1.4.2000

 Indexation benefit not available for debentures and bonds (Third Proviso to Sec. 48) Gain on the transfer of an asset would not be liable to tax if its cost of acquisition is indeterminable. Indexation benefit is available on LTCA where the period of holding is more than 3 years subject to certain exceptions u/s 2(42A).

Indexation benefit will now be available for bonds and debentures also Cost of acquisition of asset deemed to be nil if not determinable. Indexation benefit available where the period of holding of the asset is more than 1 year.

Tax rates for an individual

Exemption limit (DTC) -Males : -Females : -Senior Citizen :

1,60,000 1,90,000 2,40,000

IMPACT OF

DIRECT TAX CODE 2009

ON

LONG TERM CAPITAL GAINS

FROM LISTED EQUITY SHARES AND MFs

Illustration
Mr. A bought 1,000 listed shares of XYZ Ltd. in September 2003 for Rs 20,000 Sold them for Rs 3,40,000 in November 2009. Indexed Cost of Acquisition is Rs. 25,140. LTCG is Rs. 3,14,860. Tax Liability under Income Tax Act, 1961 is NIL as it is exempt u/s 10(38). Tax Liability under DTC, 2009 is Rs. 15,480 as per new slab rate of DTC.

Conclusion
DTC is in no way beneficial for Long term investment in listed equity shares and equity mutual funds.

IMPACT OF

DIRECT TAX CODE 2009

ON

SHORT TERM CAPITAL GAINS

FROM LISTED EQUITY SHARES AND MFs

Illustration
Mr. A bought 1,000 listed shares of XYZ Ltd. in September 2009 for Rs 20,000. Sold them for Rs 3,40,000 in November 2009. STCG is Rs. 3,20,000. As per Income Tax Act, 1961 STCG will be taxed at 15% (Sec. 111A) amounting to Rs. 48,000 Under DTC- 2009, tax liability is Rs. 16,000 as per new slab rate of DTC.

Conclusion
DTC is beneficial for short term investments in listed equity shares and equity MFs upto Rs. 10,00,000 only. Beyond Rs. 10 Lakhs it will be taxed at 20% as per the new slab rate of DTC.

IMPACT OF

DIRECT TAX CODE 2009

ON

CAPITAL GAINS
FROM UNLISTED EQUITY SHARES AND MFs

Illustration
Mr. A bought 1,000 unlisted shares of XYZ Ltd. in September 2003 for Rs 20,000. Sold them for Rs 3,40,000 in November 2009. Indexed Cost of Acquisition is Rs. 25,140. LTCG is Rs. 3,20,000. As per Income Tax Act, 1961 LTCG will be taxed at 20% amounting to Rs. 64,000. Under DTC- 2009, tax liability is Rs. 16,000 as per new slab rate of DTC.

Conclusion
DTC is beneficial for Long term investments in unlisted shares and mutual funds upto Rs. 10 Lakhs and shall remain neutral from Rs. 10 Lakhs to Rs. 25 Lakhs. Beyond Rs. 25 Lakhs, it is unfavorable as LTCG will be taxed at 30%.