The Indian Tax Structure- The New-Age Phoenix, as it rises from its own ashes!
On the 30th August, 2010, as the Government of India places the Direct Taxes Code Bill, 2010,(DTC) before the Indian Parliament, the age old tradition of the older generation making way for the newer one is seen. With the recent changes in the Indian economy and its fast pace of growth, an internationally compatible Tax structure to match up, was the need of the hour. With the introduction of the DTC, 2010, replacing the Income Tax Law (ITL), such needs seem to be well met.
With a primary aim to simplify the lengthy tax procedures and an easy payment of taxes in order to reduce litigation, the DTC, 2009 was initially welcomed with open arms, both by the Parliament as well the Tax Payers from the Corporate and Non-corporate sectors. However, with the release of the Revised Discussion Paper as issued in June-2010, the content of the Code and its final implication has been a debatable issue and its impact on various proposals in relation to current structures remains to be widely assessed.
A wide amount of ambiguity is noticed in the deductions category under the DTC which used to be the most favourite part under ITL amongst the individual tax payers and has now been the worst hit. Say, where under section 80C of the ITL, an individual would be allowed a deduction of Rs. 1.00 Lakh annually, on specified investments, the limit inspite of being raised to Rs. 1.5 Lakh, has been a disappointment due to unavailability of clear details of deduction. Further, the tax holiday regime prevailing under the present ITL, providing Profit-linked incentives have been proposed to be withdrawn and substituted to Investment-linked incentives. In the opinion of the Experts, it is witnessed as a good measure since it would provide encouragement for more investments amongst the tax payers.
Another major transformation in the tax structure would be seen with the changes in the Tax slabs and rates for all assessees. With the concepts of ‘Previous year’ and ‘Assessment year’ as proposed to be done away with and he removal of Surcharge and Education Cess, a major simplification reform has been complied with. Further, the Maximum tax rates applicable to the ‘Persons’ is proposed at 30% with an additional Dividend Distribution Tax @ 15% to be paid by Domestic companies on the dividends declared. The MAT applicable to the corporate and chargeable currently @ 15% under section 115 JB of the ITL has been proposed to be increased to 20%. The proposed changes in the Income Tax slabs have been made to result in the incremental savings of tax.
Few major changes have also been proposed under the Capital Gains head, the implementation of which shall eliminate the distinction between short-term investment asset and long-term investment asset. A change in the calculation of base date for cost of acquisition is to be shifted from 1st April 1981 to 1st April 2000 as a consequence of which, all unrealized capital assets between April ’81 to March 2000 shall not be liable to tax which leads to marking a major transformation at the times of the current market scenario.
The Direct Tax Code has been the need of the hour for quite sometime now and its implementation in April-2012 shall provide with a sense of freshness in the Indian Tax Laws which was slowly crumbling. However, much reform in the other relevant Tax Laws in relation to Sales Tax, Excise, Customs and other Indirect Taxes are yet to be carried upon to keep up with the changes as proposed by the DTC. The final implication and the pros and cons in relation to the DTC is yet to be seen and its impact would be possible for ascertainment only with its implication. The Indian Economy is slowly but steadily moving towards matching up with its International counterparts. Let’s be hopeful and keep our fingers crossed till then!
-Compiled by: Nikita Jain
