Latest Expert Exchange Queries
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Service Tax | Sales Tax | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Indirect Tax | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing
Popular Search: VAT Audit :: list of goods taxed at 4% :: articles on VAT and GST in India :: TAX RATES - GOODS TAXABLE @ 4% :: VAT RATES :: form 3cd :: ACCOUNTING STANDARDS :: TDS :: cpt :: Central Excise rule to resale the machines to a new company :: empanelment :: due date for vat payment :: ARTICLES ON INPUT TAX CREDIT IN VAT :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: ACCOUNTING STANDARD
News Headlines »
 What to do if you get an income tax notice after demonetisation
 SBI calls for raising income tax exemption limits
 Did you know? The tax exemption on your HRA
 Income Tax Department expands list of deposits, transactions under scrutiny
  Income-tax Act, 1961 read with Rule 114E of Income-tax Rules, 1962
 Master Directions on Access Criteria for Payment Systems
 RBI-Scheduled Bank's Statement of Position in India as on Friday, January 06, 2017 (Revised)
 3 Big Mistakes To Avoid This Tax Season
 The Top 5 Tax Stories Of 2017
 Are multiple service tax rates in the offing?
 All you need to know about claiming tax break on HRA

Where all tax code needs improvement
October, 15th 2009

The Direct Tax Code (DTC) several welcome features like reduction of corporate tax rate, widening of income tax slabs for individuals, introduction of advance pricing agreement and indefinite carry-forward of losses.

However, there are certain proposals which militate against the ethos of the times. The Indian economy needs investment, higher savings, capital formation and massive infrastructure build-up. Some provisions in the code will go against all these if adopted as they are. First, let us examine the tax code on investment friendliness; second, how stable and predictable it is and third, its social impact.

Firstly, the code goes against fundamental economic logic. MAT has been a tax on profits. It is now proposed to be levied at 2% of the gross asset value and represents a shift from profit-based taxation to asset-based taxation. This is the biggest disincentive in the DTC for investment.

For example, a power project with a capital investment of Rs. 1,000 crore with a gestation period of 5 years will have to shell out a sum of Rs. 100 crore (Rs. 20 crore a year, for 5 years) as MAT payment even before the commencement of actual generation of power.

It will require an entrepreneur to effectively borrow to pay tax: certainly not a situation which encourages investment in such infrastructure projects, which the country needs so badly. MAT is proposed to be levied even on debt-funded assets and thus is actually a tax on gross assets without netting of debts. This is surely not in line with best global practices on taxation.

The code proposes to include all financial assetsshares, securities etc. (currently tax exempt) in the computation of wealth tax. This would materially impact promoters, family trusts and high net worth individuals who are providers of capital and therefore hold a portfolio of financial assets. It is suggested that financial assets should continue to be outside the ambit of wealth tax.

Similarly, the abolition of exemption or concession for long-term and short-term capital gains on listed securities and concessional rate of tax on short-term capital gains would have serious impact on investment in the capital market. Also, India may not be able to retain its preferential status for foreign portfolio investments. Status quo on these should be maintained.

Secondly, while the new code sees to avoid ambiguity and provide stability in the tax regime, there are some proposals which will add to ambiguity. Let me illustrate: the code proposes to vest wide discretionary powers on tax commissioners to invoke General Anti-avoidance Rule and to declare any arrangement as impermissible tax avoidance arrangement. Further, there is no recourse to appeal to the tribunal.

Similarly, treating a foreign company as resident even if it is partly managed from India is surely subjective, and lead to protracted litigations.

Thirdly, the tax code is iniquitous in some ways. The proposed shift to the concept of EET (Exempt, Exempt, Tax) from the current system of tax exemption for long-term savings like PF and life insurance (EEE) will impinge upon the terminal savings of those who have nothing else to fall back upon.

It has been clarified that withdrawal from accumulated savings as on March 31, 2011 will not attract EET provisions and this is welcome. However, any withdrawal from investment in long-term savings made after that date will come under the purview of EET. Ficci thinks the present provisions of EEE should continue.

The code proposes to tax all charitable organisations and trusts particularly those carrying on any activity of rendering any service for consideration, at normal tax rate of 30%. The criteria behind tax exemption for such organisation should be the end use of income and not the generation of income. So, while there are welcome features in the tax code, there are elements which call for correction. The tax code must be in consonance with the times.

Home | About Us | Terms and Conditions | Contact Us
Copyright 2017 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Web Application Development Web based Software Solution Web Application Deployment Web Application Solutions Web Application Software Development Web Application Deployment Web Application Programming Web Application Design and Development

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions