navdeep tax code

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TERM PAPER

OF

BUSSINESS ENVIRONMENT

Topic: -DIRECT TAX CODE

Submitted to: - Submitted by: -

MR.HITESH JHANJI NAVDEEP KAUR

ROLL NO.B39

REG.NO:-11008700



Acknow l e dg emen t

I sincerely feel that the credit of this term paper could not be narrowed to only one

individual as the whole work is outcome of integrated efforts of all those concerned

with it through whose cooperation and effective guidance I could achieve its

completion.

I wish to place my profound indebtness and deep sense of obligation to MR

HITESH JHANJI Senior lecturer Lovely Professional University for providing me

with the opportunity to work on such an interesting topic. I also want to pay my

gratitude and sincere thanks to my esteemed sir for being supportive and lenient

during the entire tenure of this term paper.

NAVDEEP K AUR



HISTORY

The Income Tax Act, 1961, will become history once the direct tax code Bill is approved. Hereare the key proposals:

Tax rates: The Bill has widened income slabs for individual taxpayers. The lowest tax rate of 10% is applicable to salary income of Rs2-5 lakh, 20% on income of Rs5-10 lakh and 30% onincome above Rs10 lakh.These numbers are significantly lower than what was initially proposedin the first draft of the code, where income of Rs25 lakh and above was put in the higher tax slabof 30%. For senior citizens, tax exemption is sought to be raised to Rs2.5 lakh. However, there isno special tax exemption for women tax payers.

Residential status: The requirement of being present in India for 730 days in the preceding sevenyears, essential for qualifying as an ordinary resident, is being dropped. However, with regard totaxation on worldwide income for a person resident in India, the condition will still be valid. So,while the status of not ordinarily resident (NOR) as defined in the Act will no longer exist, theconcept will remain as first-time expatriates working in India will become taxable on their

worldwide income only after they have been in India for 730 days or more in the precedingseven years.

Income from salary: Key proposals for taxation of income under the head of salary are asfollows. An employee friendly change is that the employer¶s contribution to the approvedsuperannuation fund is proposed to be exempt from tax without any cap. Under the existing Act,the employer¶s contribution to the superannuation fund is exempt only up to Rs1 lakh. Further,reimbursement of medical expenses incurred by the employee on self and family treatment is proposed to be exempt from tax up to Rs50,000 per year as against the current limit of Rs15,000.This is a major bonanza for salaried employees.

In addition to the above changes, the much needed exemption for House Rent Allowance (HRA)in respect of expenditure incurred on rent paid, which was not provided in the draft code, has been introduced. This will be another big relief for salaried taxpayers since the exemption for HRA accounts for substantial tax savings. However, the exemption available for leave travelallowance is proposed to be scrapped.

Also, the exemption limits for gratuity, leave encashment and voluntary retirement scheme shallalso be specified. Income from house property: This will be a welcome change ± no taxation on



deemed income basis. The concept of fair market value for calculation of income from house property has been done away with. This will simplify matters. Income from the letting of house property will be computed on the basis of contractual rent, i.e. the amount of rent received or receivable for the financial year less specified deductions. Specified deductions range frommunicipal taxes, standard deduction on the gross rent to deduction of interest on loan paid during

the fiscal year.

The Bill proposes to reduce the standard deduction on account of repairs and maintenance fromthe existing 30% to 20% of gross rent. A notable omission is the deduction for service tax paidon rented commercial property which was sought to be introduced by the revised discussion paper. The deduction of interest on loan taken for self occupied property will be available up toRs1.5 lakh. However, the Bill proposes to change the scheme of deduction for self-occupiedhouse property vies-a-visa the rented property. In the case of self-occupied property, thededuction for interest on loans taken is available from gross total income. A welcome change inthe Bill is the reinstatement of deductions for interest paid on loans during the pre-constructionor pre-acquisition period in five equal installments. This was missing in the draft code.

The definition of the period of holding for non-equity assets Capital gains: to be consideredlong-term is one year from the end of the financial year in which the asset is acquired ascompared to the existing definition in the Act, which is more than 36 months. In addition,definition of period of holding for equity and equity oriented funds, which have been charged toSTT for long-term, is one year from when the asset is acquired. This is the same as the existingact. As per the revised discussion paper (RDP), this was to be changed to same as other assets.

Further, long-term capital gains on the sale of listed equity shares and units of equity orientedfunds will get 100% deduction, hence are fully exempt while short-term capital gains for sharesheld for one year or less deduction of 50% will be allowed. There are no special tax rates for

taxation of capital gains -- short term or long term. For non-equity capital assets -- capital gainswill be calculated after giving the benefit of indexation. The capital gains deposit scheme, whichwas proposed to be scrapped as per RDP, has been included in the DTC Bill.

Parallel to the deduction available under Section 80C of the Tax savings: Act, the Bill proposesa deduction up to Rs1 lakh for contributions to various approved funds. An additional deductionof Rs50,000 has been proposed under the Bill for payments for life insurance, health insuranceand children¶s education. While the initial draft code had proposed the exempt-exempt-tax (EET)system, the Bill retains the existing exempt-exempt-exempt (EEE) taxation philosophy for select benefits.

Wealth tax: The Bill proposes to increase the existing exemption limit for chargeability of wealthtax to Rs1 crore from the existing limit of Rs30 lakh under the Act. The Bill proposes to levywealth tax on net wealth in excess of Rs1 crore (as opposed to Rs50 crore originally proposed) atthe rate of 1%. Definition of wealth has also undergone a change to include watches, trustsoutside India, equity and preference shares etc.

The tax code is a significant turnaround on the originally proposed revamping of how income isto be taxed in the hands of the individual taxpayer. Hence, EEE stays and for the need to



maintain the fiscal balance, government had no choice, but to pull back the liberal tax regime proposed in the initial draft.

Preliminary :

The rapid changes in administration of direct taxes, during the last decades, reflect the historyof socio-economic thinking in India. From 1922 to the present day changes in direct tax lawshave been so rapid that except in the bare outlines, the traces of the I.T. Act, 1922 can hardly be seen in the 1961 Act as it stands amended to date. It was but natural, in thesecircumstances that the set up of the department should not only expand but undergo structuralchanges as well.

2. Changes in administrative set up since the inception of the department:

The organisational history of the Income-tax Department starts in the year 1922. The Income-tax Act, 1922, gave, for the first time, a specific nomenclature to various Income-taxauthorities. The foundation of a proper system of administration was thus laid. In 1924,Central Board of Revenue Act constituted the Board as a statutory body with functionalresponsibilities for the administration of the Income-tax Act. Commissioners of Income- taxwere appointed separately for each province and Assistant Commissioners and Income-taxOfficers were provided under their control. The amendments to the Income tax Act, in 1939,made two vital structural changes: (i) appellate functions were separated from administrativefunctions; a class of officers, known as Appellate Assistant Commissioners, thus came intoexistence, and (ii) a central charge was created in Bombay. In 1940, with a view to exercising

effective control over the progress and inspection of the work of Income-tax Departmentthroughout India, the very first attached office of the Board, called Directorate of Inspection(Income Tax) - was created. As a result of separation of executive and judicial functions, in1941, the Appellate Tribunal came into existence. In the same year, a central charge wascreated in Calcutta also.

.1 World War II brought unusual profits to businessmen. During 1940 to 1947, Excess ProfitsTax and Business Profits Tax were introduced and their administration handed over to theDepartment (These were later repealed in 1946 and 1949 respectively). In 1951, the 1stVoluntary Disclosure Scheme was brought in. It was during this period, in 1946, that a fewGroups 'A' officers were directly recruited. Later on in 1953, the Group 'A' Service wasformally constituted as the 'Indian Revenue Service'.

.2 This era was characterised by considerable emphasis on development of investigationtechniques. In 1947, Taxation on Income (Investigation) Commission was set up whichwas declared ultra vires by the Supreme Court in 1956 but the necessity of deepinvestigation had by then been realised. In 1952, the Directorate of Inspection(Investigation) was set up. It was in this year that a new cadre known as Inspectors of Income Tax was created. The increase in 'large income' cases necessitated checking of thework done by departmental officers. Thus in 1954, the Internal Audit Scheme was



introduced in the Income-tax Department.

.3 As indicated earlier, in 1946, for the first time a few Group A officers were recruited in thedepartment. Training them was important. The new recruits were sent to Bombay andCalcutta where they were trained, though not in an organised manner. In 1957, I.R.S.(Direct Taxes) Staff College started functioning in Nagpur. Today this attached office of the Board functions under a Director-General. It is called the National Academy of DirectTaxes. By 1963, the I.T. department, burdened with the administration of several other Acts like W.T., G.T., E.D., etc., had expanded to such an extent that it was considerednecessary to put it under a separate Board. Consequently, the Central Board of RevenueAct, 1963 was passed. The Central Board of Direct Taxes was constituted, under this Act.

.4 The developing nature of the economy of the country brought with it both steep rates of taxes and black incomes. In 1965, the Voluntary Disclosure Scheme was brought infollowed by the 1975 Disclosure Scheme. Finally, the need for a permanent settlementmechanism resulted in the creation of the Settlement Commission.

.5 A very important administrative change occurred during this period. The recovery of arrears of tax which till 1970 was the function of State authorities was passed on to thedepartmental officers. A whole new wing of Officers - Tax Recovery Officers was createdand a new cadre of post of Tax Recovery Commissioners was introduced -1-1-1972.

.6 In order to improve the quality of work, in 1977, a new cadre known as IAC (Assessment)and in 1978 another cadre known as CIT (Appeals) was created. The Commissioners' cadrewas further reorganised and five posts of Chief Commissioners (Administration) werecreated in 1981.

.7 Tax Reforms : Certain important policy and administrative reforms carried out over the past few years are as follows :-

(a). The policy reforms include :-

y Lowering of rates;y Withdrawls/reduction of major incentives;y introduction of measures for presumptive taxation;y simplification of tax laws, particularly relating to capital gains; andy Widening the tax base.

(b). The administrative reforms include :-

y Computerisation involving allotment of a unique identification number

to tax payers which is emerging as a unique business identificationnumber; and

y realignment of the available human resources with the changedy Business needs of the organisation.

.8 Computerisation: Computerisation in the Income-tax Department started with the setting upof the Directorate of Income tax (Systems) in 1981. Initially computerisation of processing



of challans was taken up. For this 3 computer centres were first set up in 1984-85 inmetropolitan cities using SN-73 systems. This was later extended to 33 major cities by1989. The computerized activities were subsequently extended to allotment of PAN under the old series, allotment of TAN, and pay roll accounting. These computer centres used batch process with dumb terminals for data entry.

In 1993 a Working Group was set up by the Government to recommend computerisationof the department. Based on the report of the Working Group a comprehensivecomputerisation plan was approved by the Government in October, 1993. In pursuance of this, Regional Computer Centres were set up in Delhi, Mumbai, and Chennai in 1994-95with RS6000/59H Servers. PCs were first provided to officers in these cities in phases.The Plan involved networking of all users on LAN/WAN. Network with leased datacircuits were accordingly set up in Delhi, Mumbai and Chennai in Phase-I during 1995-96. A National Computer Centre was set up at Delhi in 1996-97. Integrated applicationsoftware were developed and deployed during 1997-99. Thereafter, RS6000 type midrange servers were provided in the other 33 Computer Centres in various major cities in

1996-97. These were connected to the National Computer Centre through leased lines.PCs were provided to officers of different level upto ITOs in stages between 1997 and1999. In phase II offices in 57 cities were brought on the network and linked to RCCsand NCC.

.9 Restructuring of the Income-tax department : The restructuring of the Income-taxDepartment was approved by the Cabinet in its meeting held on 31-8-2000 to achieve thefollowing objectives :-

y Increase in effectiveness and productivity;y Increase in revenue collection;y Improvement in services to tax payers;y Reduction in expenditure by downsizing the workforce;y Improved career prospects at all levels;y Induction of information technology; andy Standardization of work norms

The aforementioned objectives have been sought to be achieved by the departmentthrough a multi-pronged strategy of :

a. redesigning business processes through functionalisation;

b. increasing the number of officers to rationalise the span of control for better

supervision, control and management of workload and to improve tax-payer services and

c. re-orient, retrain and redeploy the workforce with appropriate incentives in theform of career advancement.

3. Important events affecting the administrative set up in the Income-tax department:

1939 y Appellate functions separated from inspecting functions.



y A class of officers known as AACs came into existence.

y Jurisdiction of Commissioners of Income tax extended to certain classes of cases and a central charge was created at Bombay.

1940 y Directorate of Inspection (Income-tax) came into being.

y Excess Profits Tax introduced i.e. 1-9-1939.

1941 y Income-tax Appellate Tribunal came into existence.

y Central charge created at Calcutta.

1943 y Special Investigation Branches set up.

1946 y A few officers of Class-I directly recruited.

y Demonetizations of high denomination notes made.

y Excess Profits Tax Act repealed.

1947 y Business Profits Tax enacted (for the period 1-4-1946 to 31-3-1949).

1951 y Report of Income-tax Investigation Commission known as VardhachariCommission received.

y Voluntary Disclosure Scheme introduced.

1952 y Directorate of Inspection (Investigation) set up.

y Inspector of Income-tax declared as an I.T. authority.

1953 y Estate Duty Act, 1953 came into existence w.e.f. 15-10-1953.

y Act XXV of 1953 gave effect to the recommendations of Commissionappointed under Taxation of Income (Investigation Commission) Act, 1947.

1954 y Internal Audit Scheme in the Income-tax Department introduced.

y Taxation Enquiry Commission known as John Mathai Commission set up.

1957 y The Wealth tax Act, 1957 introduced w.e.f. 1-4-1957.

y I.R.S.(DT) Staff College started functioning at Nagpur and much later four R.T.Is. stationed at Bombay, Calcutta, Bangalore and Lucknowopened.

1958 LI>The Gift-tax Act, 1958 introduced i.e. 1-4-1958.

y Report of Law Commission received.

1959 y Direct Taxes Administration Enquiry Committee submitted its report.

1960 y Directorate of Inspection (Research, Statistics & Publications)was set up.



y Two grades of Inspectors - selection and ordinary grades - merged intoone single grade.

1961 y Direct Taxes Advisory Committee set up - Direct Taxes AdministrativeEnquiry Committee constituted.

y Income-tax Act, 1961 came into existence i.e. 1-4-1962.

y Revenue Audit introduced for the first time in the Department.

y New system for evaluation of work done by Income-tax Officers introduced.

1963

1964

y Central Board of Revenue bifurcated and a separate Board for Direct Taxesknown as Central Board of Direct Taxes (CBDT)constituted under the CentralBoard of Revenue Act, 1963.

y For the first time an officer from the department became Chairman of theCBDT i.e. 1-1-1964.

y The Companies (Profits) Sur -tax Act, 1964 was introduced.

y Annuity Deposit Scheme, 1964 introduced.

1965 y Voluntary Disclosure Scheme came into operation.

1966 y Functional Scheme introduced.

y Special Recovery Unit created.

y Intelligence Wing created and placed under the charge of Directorate of Inspection (Investigation).

1968 y Valuation Cell came into existence in the Income tax Department.

y Report of rationalisation and simplification of tax structure (BhoothalingamCommittee) received.

y Administrative Reforms Commission set up.

1969 y Direct Recruitment to Class II Income-tax Officers made.

y The post of IAC (Audit) created in the Income-tax Department.

1970 y The posts of Addl. Commissioner of Income-tax created and abolished after one year.

y Recovery functions which were hitherto performed by Income- tax

Officers, given to Tax Recovery Officers. Prior to that State Governmentofficials exercised the functions of a Tax Recovery Officer.

1971 y A new cadre of posts known as Tax Recovery Commissioners introducedi.e. 1.1.1972.

y Report of Direct Taxes Enquiry Committee received.

y Summary Assessment Scheme introduced i.e. 1-4-1971.



1972 y A Special Cell within the Directorate of Inspection (Investigation) created tooversee the cases of big industrial houses.

y A new cadre of posts known as IAC(Act.) created and IAC appointed asCompetent Authority with the insertion of new Chapter XXA in the IncomeTax Act, 1961 on the acquisition of immovable properties in certain cases of transfer to counter evasion of tax.

y Directorate of Organisation & Management Services (Income- tax)created.

y The post of I.T.O. (Internal Audit) created.

y Bradma Scheme in the Income-tax Department introduced.

y System of Permanent Account Number introduced.

y Valuation Officers gave statutory powers under the Income-tax Act, 1961and Wealth-tax Act, 1957.

1974 y

Compulsory Deposit Scheme (Income-tax Payers) Act, 1974 introduced.y Action Plan for the Income-tax Officers introduced for the first time.

y Concept of M.B.O introduced.

1975 y Voluntary Disclosure Scheme for Income and Wealth implemented.

y Special Cell for dealing with Smugglers' cases created.

1976 y Settlement Commission created and Taxation Laws (Amendment) Act, 1975inserted a new Chapter XIXA in the Income Tax Act w.e.f.1-4-1976.

y Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act,

1976 introduced i.e. 25-1-1976.y A new scheme for departmentalization of accounts introduced.

y Chokshi Committee submitted its interim report.

1977 y A new cadre of posts known as IAC (Assessment) created.

1978 y Appellate functions given to a new cadre of Commissioners known asCommissioner (Appeals).

y Directorate of Inspection (Recovery) set up.

y A new directorate known as Directorate of Inspection (Vigilance) came

into existence by bifurcating the functions of Directorate of Inspection(Investigation).

y Chokshi Committee submitted its final report.

1979 y A new directorate designated as Directorate of Inspection (Publication &Public Relations) created out of the Directorate of Inspection (RS&P).

1980 y Hotel Receipt Tax Act, 1980 came into force i.e. 1.4.1981.



1981 y Economic Administrative Reforms Commission set up.

y Three new Directorates viz. Directorate of Inspection (Intelligence),Directorate of Inspection (Survey) and Directorate of Inspection (Systems)created.

y

Within the Directorate of Inspection (Income Tax and Audit), a separateDirector of Inspection (Audit) appointed.

y Directorate of Inspection (RS&P) re-organised and Directorate of Inspection (P&PR) re-designated as Directorate of Inspection (Printing &

Publications).

y I.R.S.(DT) Staff College, Nagpur, re-designated as National Academy of Direct Taxes.

y Special Bearer Bonds (Immunities & Exemptions) Act promulgated.

y Director General (Special Investigation) and Director General(Investigation) appointed to control the functioning of various

Directorates under the control of Central Board of Direct Taxes.y Five posts of Chief Commissioner (Administration) created.

y A few posts of Commissioner of Income-tax were earmarked asCommissioner of Income-tax (Inv.) and Commissioner of Income- tax

(Recovery).

1982 y Special Cell within the Directorate of Inspection (Investigation)converted into a separate Directorate and re-designated as Directorate of

Inspection (Special Investigation).

y DIT (Systems) appointed in the Directorate of Income-tax (Organisationand Management Services) to coordinate efforts in introducing electronicdata processing in the IT Dep¶t. A microprocessor based EDP system alongwith data entry system was installed heralding the era of computerisation.

y Levy of Hotel Receipts Tax discontinued.

y Regional Training Institute at Nagpur started functioning under the controlof the National Academy of Direct Taxes.

1983 y The vigilance set up reorganised and the strength of Dy. Director (Vigilance)and Asstt. Director (Vigilance) augmented.

y Computerised systems for processing challans and PAN designed anddeveloped.

1984 y Taxation Laws(Amendment) Act 1984 passed to streamline procedures inthe interest of better work management; avoid inconvenience to tax payers;reduce litigation; remove anomalies and rationalise some provisions.

1985 y Post of Director General (Investigation) created for more effectivechecking of tax evasion.



y E.D.(Amendment) Act 1985 discontinues levy of estate duty on deathsoccurring on or after 16.03.1985.

y Compulsory Deposit Scheme (Income Tax Payers) Act 1974 discontinuedi.e. 1.4.1985.

y

Interest Tax Act, 1974 discontinued i.e. 31.3.1985y A new "Reward Scheme" for motivating officers introduced i.e. 1.4.1985.

1986 y The I.T. Act and W.T. Act amended by Taxation Laws (Amendment andMiscellaneous Provisions) Act :-

y Established Settlement Commission.

y Introduced Block assets concept for depreciation.

y Four offices of Appropriate Authority for acquiring property in whichunaccounted money is invested set up in metropolitan cities.

1987

y

Government¶s approval obtained to set up three new benches of SettlementCommission.

y L.K. Jha Committee set up for simplification and rationalisation of tax laws.

y Office of Directorate General (Tax Exemption) set up at Calcutta.

y The Direct Tax Law(Amendment) Act 1987 introduced uniform previousyear and redesignated the following authorities :-

Director of Inspection

Insp. Asstt. Commissioner of I. Tax

Appellate. Asstt. Commissioner

Income tax Officer Gr. AIncome tax Officer Gr. B

Director of Income Tax

Dy. Commissioner of Income Tax.

-Do- (Appeals)

Asstt. Commissioner of I. TaxIncome tax Officer

y Expenditure Tax Act 1987 brought into force.

1988 y Benami Transactions Prohibition Act 1988 introduced.

y The Government announced a "Time Window Scheme" which allowedtax payers 50% rebate of interest u/s 220(2) if they pay the tax and balanceinterest. The scheme was in operation between 1.7.88 to 30.9.88.

y CIT (Central) placed under the control and supervision of Director General (Investigation).

y Government decided that cadre control for Group 'C' and 'D' posts would be with Chief Commissioner and with CBDT for Group 'A' and 'B'posts.

y Extension of Direct Tax Law to the State of Sikkim by a notification of the President of India dated 7.11.1988.

1989 y Creation of an attached office of DGIT(Management Systems) tosupervise Directorate of I. Tax(Research, Statistics, Publication & Public



Relations) and Directorate of I. Tax (Organisation and ManagementServices) from Sept. 1989.

1990 y Gift tax Bill introduced on 31.5.1990.

y Creation of 65 posts of Dy. Commissioner of I. Tax by up gradation of

equal number of posts of Asstt. Commissioner of I. Tax.

1991 y Interest Tax Act, 1974 revived.

y Directorate of I. Tax (Systems) started reporting directly to Board.

1992 y Rs. 1400 Presumptive Taxation scheme introduced as a measure to widentax base.

y The post of Director General of Income-tax (Management Systems) wasabolished.

1993

y

40 additional posts of Commissioner of Income-tax (Appeals) created.y Authority for Advance Rulings set up.

y A comprehensive phased cadre review for Group B, C and D initiated.

1994 y 2068 additional posts in Group B, C and D sanctioned.

y New PAN introduced.

y Regional Computer Centres (RCCs) were set up in Chennai, Delhi andMumbai.

1995 y New procedure for search assessment introduced.

y 50 years of training commemorated and "Seminar Twenty Five"introduced by National Academy of Direct Taxes.

1996 y 77 posts of Commissioners of Income-tax created.

y Infrastructure for operational needs strengthened.

y Study report on 4th cadre review of Group 'A' officers (IRS) of theDepartment prepared by Directorate of Income Tax (Organisation andManagement Services).

1997 y Rates of Income-tax reduced significantly.

y Legal measures to widen tax base on certain economic indicatorsintroduced in selected cities.

y Presumptive tax scheme discontinued.

y Voluntary Disclosure Scheme 1997 introduced.

y Minimum Alternate Tax introduced.

y National Computer Centre (NCC) was set up in Delhi.



1998 y Sec. 260A introduced enabling direct appeals to High Court.

y 1/6 Scheme & penalty for non-filing of return introduced to widen tax base.

y Gift-tax abolished for gifts made after 1.10.1998.

y Kar Vivad Samadhan Scheme 1998 introduced.y Silver Jubilee of Regional Training Institutes celebrated.

y Designation of Asstt. Commissioner (Senior Time Scale) changed to Dy.Commissioner and that of Dy. Commissioner (Junior Administrative Grade)to Joint Commissioner.

1999 y Furnishing details of bank account and credit cards in the prescribed formmade mandatory for refund purpose.

y Prima-facie adjustments to return done away with; acknowledgments toserve as intimations.

y Sandman Scheme introduced in 1999 to honour deserving tax payers.

2000 y The process of implementation of restructuring of the Departmentcommenced to increase efficiency and to deal with increased workload.

y Total sanctioned work force reduced from 61,031 to 58,315.

y Certain rationalisation measures at structural levels introduced.

y Interest-tax Act terminated with effect from 1-4-2000.

2001 y The restructuring of the Department resulted in reducing the stagnation atall levels and large number of personnel was promoted in various grades.

y Jurisdiction pattern was revamped.y New posts were created at the level of DGIT/DIT in the areas of Research,International Taxation and Infrastructure.

2002 y Computerised processing of returns all over the country introduced.

y Kelkar Committee Report, inter alia, recommended :-

i. Outsourcing of non-core functions of the department ;

ii. Reduction in exemptions, deductions, reliefs, rebates etc.

INTRODUCTION:-

Government has specified the time frame for GST, Goods and Services Tax and Direct Tax Code

while presenting the budget Finance Minister said that the intensive discourse on the Direct Tax

Code (DTC) with all the interested parties, have come to final conclusion and now the

government would be able to implement the DTC from April 1, 2011.



However, Government is still engaged with the Empowered Committee of State Finance

Ministers to finalise the Good and Services Tax (GST) as well as the modalities of its prompt

implementation. The government will make an effort to introduce GST by April 2011, the

Minister added.

Direct tax collection in the country is likely to double after the proposed Direct Tax Code and theGoods and Service Tax regime come into effect, a top government official said on Saturday.

"We are moving towards a scenario, where I think there will be a substantial increase in

collection of taxes. The Direct Tax Code and Goods and Service Tax will be in place. The GST

will help us in Direct Tax collection," Central Board of Direct Taxes (CBDT) Chairman

Once GST is in place, all transactions would become transparent, he said, adding, "I think the

direct tax collection may also double," Moorthy said while addressing a seminar on Tax

Deduction at Source (TDS) organised by the Indian Merchants' Chamber here today.

Referring to Eurozone crisis, he observed that the debt crisis in the Eurozone is unlikely to have

any effect on the domestic economy and would not impact tax collection.

"The symptoms are very good...as reported, the indirect tax collection has gone up by 40 per

cent, which shows that industry has picked up. I don't think Portugal or Greece will leave any

shadow on us," Moorthy said.

The CBDT Chairman exuded confidence that the Government would be able to achieve the

direct tax target of Rs 4,30,000-crore for this fiscal. "The target is quite stiff. We have to collectabout Rs 4,30,000 crore after surrendering about Rs 26,000-crore in the form of process

streamlining and reduction in TDS rates in the last budget,"

Finance Minister Pranab Mukherjee had declared that he would present a new Direct tax code

which would replace the Income Tax Act of 1961. The code also ensures that we will not have

any confusion over assessment year and financial year and previous year. It will be about

financial year.

Highlights of the Direct Tax Code:

1. Not tax on annual income upto Rs.1.60 lakh

2. 10% tax for Rs 10 lakh income; 20% for Rs.25 lakhs and 30% for over Rs.25 lakhs

3. Corporate tax to come down from 30% to 25%

4. Wealth tax on wealth over Rs.50 crore

5. Increase deduction limit for savings upto Rs.3 lakhs

6. Interest on savings to be taxed



7. Security transaction tax (STT) to be abolished

8. To do away with long, short-term capital gains differentiation

9. Base year for calculation of capital gains tax moved to Apr '00

10. Allow indefinite carry forward of business losses

11. No tax deduction on interest payable on any Govt security

12. Rationalization of taxation of all nonprofit organizations

13. Annual disclosure of profits of non-life insurance business

14. Reintroduction of tax on long term capital gains on securities trading

15. Foreign companies to pay additional tax of 15% as branch profit tax

Though it has so many advantages listed above but since it is just declared the New Tax System

all are finding the Advantages behind this New Tax Code System but as every coin has two sides

there might be some disadvantages too. It was also came to understand that the tax brackets has

changed but the tax limit for housing loan Interest payment is reduced also for the rented house

the tax limit has changed from 30% to 20% and many others.

When finance minister Pranab Mukherjee unveiled a draft of the new Direct Tax Code in a press

meet last August, he brought home minister P Chidambaram along. After all, Mr. Chidambaram

as finance minister spent time and energy in creating a new code, and even guided a close-knit

team of revenue officials on how to write a simplified version of an income tax code which

would eventually replace five decades old Income-Tax Act.

But as Mr. Mukherjee launched the second version of the draft discussion paper this week which

ultimately will be sent to Parliament for approval, there has been a paradigm shift from what Mr.

Chidambaram and his team originally conceived. It¶s now much simpler, but it has full of exemptions to make all stakeholders happy.

The new draft code has accommodated concerns of India Inc as companies would now pay

minimum alternate tax (MAT) on book profits and not on gross assets as was originally

proposed. Also, the salaried class which bears the brunt of the current tax regime has a sigh of

relief as their tax savings schemes such as the public provident fund would remain intact.

These provisions would definitely mean loss of revenue for the exchequer and impact fiscaldeficit situation, but the windfall of Rs 1 lakh crore from 3G and broadband auctions led the

government ignore the macro economic scenario and create a feel-good situation among its

constituents.

During the last few months, there were intense deliberations both inside and outside the North

Block on whether tax saving retirement benefits should be done away with, as was conceived in



the first draft of direct tax code. Finally, the argument that prevailed was to make a complete U-

turn on the earlier provision of taxing the retirement benefits which would have forced the

salaried class feel the heat.

Now, EEE (exempt exempt exempt) tax system on retirement benefits would surely help senior

citizens in a country like India which is yet to adopt an effective social security mechanism. This

provision will be applicable to a select schemes like PPF, pension schemes, general provident

funds, recognised provident funds, pure life insurance and annuity schemes. Also, lesser tax

burden on perks and tax exemption for single house owners are a few more positives for middle

class families which have been hit hard by economic recession and food inflation during the last

couple of years.

In fact, the code addressed 11 issues, including MAT, dilemma between EEE and EET, taxation

of house property, capital gains tax, status of double taxation agreements and general anti-

avoidance rules etc. The capital gains will now be added to an individual income, meaning thatyour tax liabilities from capital gains will be more than the one who has lesser income from other

sources.

Also, securities transaction tax (STT) will stay though rates have not been announced so far,

keeping in mind the market sensitivity over the issue. The revised paper has also attempted to

end uncertainty over taxing the FIIs and tax rules regarding double taxation agreements.

IMPACT OF DIRECT TAX CODE ON SINGLE PER SON:

The year 2009 was a landmark year for Indian taxes. In this year, the government introduced thelandmark Bill, The Direct Taxes Code Bill. It is going to affect all of us as it will not only alter the tax you pay, but will also impact your investments, borrowings, and expenses. Here is how itwill affect all of us.

Tax-saving instruments you must know

Changes in tax slabs

The biggest impact of the new tax system is the significant widening of income slabs. Accordingto this, people with annual income not exceeding 1.6 lakhs will not have to pay any tax. For those with an annual income from Rs. 1.6 lakhs to Rs. 10 lakhs, you pay tax at 10%; for incomes



from Rs. 10 lakhs to Rs. 25 lakhs the tax is 20% and 30% for incomes exceeding Rs. 25 lakhs.So if your annual income is Rs. 2 lakhs, you fall in the 10% tax slab.

These rates and slabs would be applicable from the financial year 2011-12. However with thismove the government plans to make most of your allowances taxable. Hence if you are a high

earner, earning a lot of allowances, your tax liability will go up significantly.

Effect on Capital Gains

As per the new tax code, both the short-term and long-term capital gains are treated equally. Itrecommends making both the contribution and return from your investments tax-free but proposes to tax the maturity proceeds. This will affect your stocks and equity mutual funds. Thisis different from the present system, in which the maturity proceeds are tax-free.

Selling inherited gold? Pay tax!

Impact on tax savings

With the introduction of this code, the government has eliminated the various tax breaks.However the government has hiked the tax savings limit to Rs. 3 lakhs per annum, whilerestricting the available investment alternatives. So now you can invest only in PPF, EPF, lifeinsurance, superannuation funds and NPS. Besides you can also claim tax benefits on your children's education. But no more tax benefits for investing in NSCs, Senior Citizens SavingsScheme, tax-saving bank FDs and ELSS.

Impact on home loans

As of now, if you have taken a home loan, the interest payments up to Rs. 1.5 lakh and up to Rs.1 lakh towards principal repayment are eligible for tax benefit. But this is set to end once the newcode comes into effect. So if you have paid Rs 3 lakhs as interest and Rs 2 lakhs as principal, youwill not get any tax benefit. But if you have rented out a home, you can still avail of the tax benefits for taking the home loan.

The exemptions allowed

With the code, the government aims to tax the maturity proceeds of PPF as well as insurance.

However in case of insurance, deduction will be given only for the sum obtained only if the premium payable is not more than 5% of the sum assured and the sum assured is obtained onlywhen the insurance term is over. For PPF, the balance in the account as of 31st March 2010won't be taxed on withdrawal.

The effect of taxes on different investments

Here is a simple example to help figure the effect of the new tax code



Rahul is a salaried employee. His annual salary is Rs. 5 lakhs. He has invested Rs. 50,000 inmutual funds, Rs. 20,000 in insurance and Rs 40,000 in PPF. Moreover he has taken a home loanof which he has already paid Rs. 80,000 as principal and Rs. 1 lakh as interest. Let us see howhis situation will change once the new tax code comes into effect.

Rahul's present situation: Currently Rahul gets tax benefit on the amounts he has invested inPPF, mutual funds, insurance as well as on the principal repayment of his home loan. The limiton this amount is Rs 1 lakh. Besides Rahul has also paid interest on his home loan. So the totalamount tax exempted is Rs. 2 lakhs (Rs. 1 lakh tax exemption under section 80C and Rs. 1 lakhas interest on home loan.).

How the new tax code affects you

Hence now Rahul's taxable amount is Rs. 3 lakhs. (Rs 5 lakhs of salary - Rs. 2 lakhs of amountexempted). So the total tax that Rahul will pay on the amount of Rs. 3 lakhs is Rs. 15,000 (Rs. 3lakhs - Rs. 1.5 lakhs = Rs. 1.5 lakhs is the taxable amount and the tax rate applicable is 10%). So

as of now, he is paying Rs. 15,000 as tax.

Rahul's situation after the new code: Rahul's total amount exempted from tax is Rs. 1.1 lakhs(total of his amounts invested in mutual funds, PPF and insurance) + Rs 1 lakh paid towardshome loan interest. So his tax exempted amount goes up to Rs. 2.1 lakhs. His total taxableincome now becomes Rs. 2.9 lakhs. Ultimately he ends up paying Rs. 13,000 (Rs. 2.9 lakhs - Rs.1.6 lakhs = Rs. 1.3 lakhs that is taxed at 10%).

Rahul will now save Rs. 2000 in tax. He can do this because with the new tax code, thegovernment plans to hike the tax slabs. While the original tax slab for which tax was not appliedwas 0-Rs. 1.5 lakhs, the upper limit after the tax code comes into effect goes up to Rs. 1.6 lakhs.

Moreover the new code has hiked the tax exemption limits to 3 lakhs from present limit of Rs. 1lakh.

The Finance Minister 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 taxamounting to Rs 84,000/- only. Is it not really good?

But all deduction now fewer than 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

less than 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 lose all its glamour and tax benefit.

For younger Home owner there is a bad news too, the deduction of Rs 1.5 lakh allowed oninterest 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 .

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 their itself, if possible, as the interest

earned would be exempted from tax. Whenever 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 thesentiments 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 affect. 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

BANIFITS OF TAX:

Tax Advantages Are To Encourage the Development of Domestic Reserves

Domestic oil and gas development helps make our country more energy self-sufficient andreduces our dependence on foreign imports. In light of this, Congress has provided tax incentivesto stimulate domestic natural gas and oil production financed by private sources. Investments inoil and gas can have many tax advantages which greatly improved the economics of theseinvestments.

Active vs. Passive Income

The Tax Reform Act of 1986 introduced into the Tax Code the concepts of "Passive" income and"Active" income. The Act prohibits the offsetting of losses from Passive activities againstincome from Active businesses. The Tax Code specifically states that a Working Interest in an



oil and gas well is not a "Passive" activity. Therefore, deductions can be offset against incomefrom active stock trades, business income, salaries, etc.

Intangible Drilling Cost (IDCs) Tax Deduction

The intangible drilling costs (IDCs) may range between 55 - 80% of the cost of the well. TheseIDCs are 100% deductible during the first year.

For example, a $100,000 investment would have between say $60,000 to $75,000 in taxdeductions during the first year of the venture (Refer to Section 263 of the Tax Code). So if youwere in the 35% tax bracket, your reduction in taxes would reduce your investment costs by$21,000 to $26,250.

Tangible Drilling Costs Tax Deductions

The total amount of the investment allocated to the equipment "Tangible Drilling Costs (TDCs)"

is 100% tax deductible by amortization over a 7 year period.

y From April 1, 2011, finance minister Pranab Mukherjee has proposed to simplify theincome-tax regime by reducing the tax rates on incomes above Rs1.6 lakh per annum(Rs1.9 lakh for women, and Rs2.4 lakh for senior citizens), but the reduced rates .

Tax rates will be 10% for incomes from Rs1.6 lakh to Rs10 lakh, 20% for incomes uptoRs25 lakh, and 30% for earnings above Rs25 lakh per annum. But this reduction willcome at the cost of many current exemptions that taxpayers have got used to. Gone is the

Rs1.5 lakh tax deduction on interest paid on housing loans, gone are the exemptions for house rent and leave travel allowance, and gone are the deductions on investments in tax-savingmutualfundsandfixedeposits. Gone, too, is the special treatment for short-term andlong-term capital gains, currently at 15% and zero. From 2011, all gains will be taxed atyour marginal rate. A minor benefit retained: capital losses can be set off against capitalgains. Some cheer for stock investors: thesecuritiestransactiontaxwillbeabolished.Senior citizens get the best benefits, with medical expense exemptions upto Rs. 60,000 per annum, less insurance claims reimbursed. Others get Rs. 40,000 a year. Interest oneducation loans can also be deducted from incomes without any limits. Currently, thelimitisRs.40, 000. The direct tax code aims to simplify your tax life, but this may notnecessarily reduce your taxes at various levels. What you save in tax rates, you may lose

through lack of deductions. The code proposes to do away with any differentiation between tax rates on various forms of income. Take the case of capital gains on the saleof shares. Short term capital gains on shares are currently taxed at 15%. There are notaxes on long term capital gains. The code does away with this distinction. Any capitalgain made during the course of the year will be added to your salary and taxed.



y The market erupted with joy when the Union Finance Minister tabled New Direct taxCode 2009, proposing significant changes in the existing tax law in terms of increasingslabs for income and wealth taxes. The government seeks to overhaul the 48-year-old ITAct by opting for a single code for direct taxes. The impact

Would be greater for individuals in terms of saving taxes every year, and they can alsoincrease their annual savings from Rs 1 lakh to Rs 3 lakh. However, the income fromEPF, PPF and GPF would be taxed, a blow to the retirement corpus. Let us understandthe Direct Tax Code 2009 in detail and its impact on individuals.

Advantages As per the new Tax Code, incomes up to Rs 10 lakh will be taxed at 10 per cent, those between Rs 10 lakh to Rs 25 lakh at 20 per cent, and above Rs 25 lakh at 30 per cent. Thelevel for tax exemption would remain the same, i.e., at Rs 1.6 lakh, Rs 1.9 lakh and Rs2.4 lakh for individuals, women and senior citizens, respectively.

Table : New Proposed Tax Slabs

Individuals

Tax Rate Existing Income Slab (Rs) Proposed Income Slab (Rs)

Nil Up to Rs 1,60,000* Up to Rs 1,60,000*

10% 1,60,001 3,00,000 1,60,001-10,00,000

20% 3,00,001 5,00,000 10,00,001-25,00,000

30% Over 5,00,000 Over 25,00,000

* Minimum slab changes to Rs 1.9 lakh for women and Rs 2.4 lakh for senior citizens

Deductions allowed on investments in specified instruments under Section 80C would be raised from Rs 1 lakh to Rs 3 lakh, boosting one¶s savings further. The investments of Rs 3 lakh will combine all benefits, including the one available on home loan payments.



Deduction for actual interest on loan taken for higher education would continue.

Wealth will be calculated on net basis, i.e., asset value less debt, but it will include all

assets including shares. The wealth tax will be applicable on assets worth more than Rs50 crore, at 0.25 per cent. Presently, wealth tax stands at 1 per cent for assets above Rs 30lakh.

Securities Transaction Tax (STT) will be abolished, a move which will spur the volumeand trading among individuals.

Like personal taxes even the corporate tax rate too is to be cut from the existing 30% (excludingcesses and surcharges) for domestic firms to 25%. Also, companies can carry forward losses for as long as they like, while earlier, a loss in a year could be set off against profits only within thenext eight years. This something good that is there for corporate people.

Company tax rate should be reducing...But i also feel that the tax rate for individual must also be

considered. As we see everytime the budget only support to the High income profile person and

all the rebates or tax benefits only goes in to their porch. Whereas the middle salary or lower

salaried person dont get much benefit.

Tax cuts are Fiscal policies used for expansionary targets for the economy. Budget deficit is the

other counterpart in fiscal mesures for economic expansion. Now both are given and we have to believe India is on an expansionary mode. It is sad that this is after making all those agresiveinvestors cut back and difend during the turmoil. Probably there was no other go.

DISADVANTAGES OF DIRECT TAX CODE:

Withdrawals from saving schemes such as Employee Provident Fund (EPF), Public ProvidentFund (PPF), Gratuity Provident Fund (GPF), approved superannuation benefits, and lifeinsurance would follow Exempt, Exempt and Tax (EET) structure, i.e., it would be included inthe individual¶s income during the relevant year and taxed accordingly. The newly-introduced New Pension System (NPS) will continue to be in EET regime. However, withdrawals fromaccumulated balance till March 31, 2011 will not be taxed. Again, the retirement benefits would be exempt from taxes if saved in the Retirement Benefit Amount (annuity). However, the



proceeds from life insurance policy, including bonus, would be exempt from tax if it is a purelife insurance policy.

There will not be any tax deduction available on home loan interest up to Rs 1.5 lakh. The

government aims to club this benefit under the saving limit of Rs 3 lakh.

Employee benefits such as rent-free accommodation, medical reimbursements, leave travelconcessions, etc., would be clubbed together in an individual¶s income.Through this new Tax Code the Finance Minister has envisaged a uniform tax structure for all,individuals as also corporate. But it is speculated that it will take 2011 to bring the new tax codeinto reality as the final hearing would take place after the bill being placed in the parliamentduring winter session of 2009. It will include a proper discussion involving all the pointsmentioned earlier.

it is regressive It is claimed that the tax is regressive, ie its burden falls disproportionately on the poor since the

poor are likely to spend more of their income than the relatively rich person. There is merit in

this argument, particularly if it attempts to replace direct with steep, progressive rates. However,

observation from around the world and even Guyana has shown that steep tax rates lead to

evasion, and in the case of income tax act as a disincentive to effort.

Further, there is now a tendency in most countries to reduce this progressivity of taxes as has

been done in Guyana where a flate rate of income tax has been introduced. In any case other

recognises and makes room for progressivity by applying no or low rates of tax on essential

items such as food, clothes and medicine. In addition it allows for steep rates of tax on luxuryitems, although this can create problems for administration and open opportunities for evasion by

way of deliberate misclassification, a problem incidentally not peculiar to tax, and which takes

place extensively in the area of customs duties.

It is too diff icult to operate f rom the position of both the administration and business.

(a) The administration

it is often argued that tax places a special burden on tax administration. However, it is worth

noting that wherever tax was introduced one of its effects was the rationalisation and

simplification of the previous indirect tax system and its administration. Each of the previous

indirect taxes such as customs duties, purchase tax and excise duties replaced by tax had its own

rate structure as well as a different tax base and separate administrative procedure. The

consolidation and incorporation of numerous indirect taxes into the would simplify the rate

structure, tax base, and administration of the indirect tax system, thereby eliminating the

overlapping auditing practices that had plagued those systems.



In addition, the abolition of a number of alternative indirect taxes releases experienced personnel

to focus on a single tax. It also means reduction in the number of forms used, legislation to be

applied and returns and accounts with which the business person has to contend.

(b) Business

It is true that the tax is collected from a larger number of firms than under any form of income

tax or single state sales tax; to the typical smaller firms the complexities of the tax and the need

for more extensive records (for example, to justif )are likely to prove serious.

However, it is often overlooked that businesses already function with considerable administrative

responsibility for a number of laws including the Income Tax Act.

Under the Income Tax Regulations of 1980 every person, without exception is required to

maintain detailed and extensive records of all its transactions. Compliance with this will certainly

ensure compliance with tax regulations, and since there is an actual benefit to be derived fromaccounting for tax paid on input there is an incentive for proper record-keeping.

As we have noted before, tax also allows for the exemption of small businesses from the system.

Under any form of sales taxation, small businesses have to be granted special treatment because

of their inability to cope with the requirements of keeping adequate records which larger

enterprises can handle at a reasonable cost. The intent of the special treatment is to reduce the

administrative burden on small enterprises, but not the taxes that normally would be charged on

the goods and services they supply. The revenue loss at the final link in the commercial cycle is

limited only to the value added at that stage, whereas in the case of income tax or sales tax the

entire tax is lost. To recover the loss from exemptions, a flat tax on turnover may be applied.In the larger businesses with proper staff and computers, the task is really one of double entry

book-keeping and any additional work is hardly ever noticed.

It is inflationary

Some businessmen seize almost any opportunity to raise prices, and the introduction of tax

certainly offers such an opportunity. However, temporary price controls, a careful setting of the

rate of tax and the significance of the taxes they replace should generally ensure that there is no

increase if any in the cost of living. To the extent that they lead to a reduction in income tax, any

price increases may be offset by increases in take-home pay.

it f avours the capital intensive f irm

It is also argued that tax places a heavy direct impact of tax on the labour-intensive firm

compared to the capital- intensive competitor, since the ratio of value added to selling price is

greater for the former. This is a real problem for labour-intensive economies and industries.



BIPLIOGRAPHY:

1. www.taxman.com

2. www.google.com

3. www.jagoinvestor.com

4. www.pwc.com

navdeep tax code

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