Only 406K Taxpayers Earn Over 20 Lakhs: DTC Report

According to the Parliamentary Committee Report on the Direct Tax Code (DTC) headed by Yashwant Sinha, the total number of individual taxpayers (2010-11) that earned more than Rs. 20 lakhs (Rs. 2 million, or $40,000) a year were just 406,000. That is our 1%, as the total taxpayer base is around 3.25 cr. (32.5 million).

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Of course the 1% were responsible for 93,229 cr., or Rs. 932 billion of our personal income taxes collected, a whopping 63% of it.

(This does not include corporates, trusts or LLPs – only individuals)

By |April 30th, 2012|ChartOfTheDay, DirectTaxCode, IncomeTax|4 Comments

Direct Tax Code May Be Deferred, Again

The government may defer the Direct Tax Code by a year, even though Pranab Mukherjee mentioned as recently as Dec 7 that he would bring it in force from April 2012.

Dhirendra Kumar at Value Research expresses his concern about the delay – the second such one if the news is true – saying it causes unnecessary uncertainty for the regular classes:

Tax-saving patterns will change drastically when the DTC comes into effect. Broadly, the DTC tends to higher limits and a much smaller menu from which tax-saving investments have to be chosen. The lock-ins are also longer. For example, the shortest lock-in that was available was three years for ELSS, which will be gone. The NPS, which will be the only tax-saver in which money could go into equity will be locked in till retirement age.

These are very deep changes in savings patterns that we have […]

By |December 26th, 2011|Commentary, DirectTaxCode|Comments Off

No Dividend Distribution Tax for Debt Funds?

The Direct Tax Code has no DDT for debt or non-equity funds. Currently, for liquid funds, dividends are taxed at 25% plus the surcharge and cess, which adds up to nearly 28.5%. (Which I argue is still better than a fixed deposit)

So what’s the catch? Dividends will be taxed for non-equity funds, as if they are your income. Plus, there’s a dividend “withholding tax” – a sort of Tax Deducted at Source – 10% for residents (for >10K dividend), 20% for NRIs and companies.

That makes dividend income equivalent to a fixed deposit, where you get paid a certain amount of interest every year and the bank holds back 10% as TDS. It also makes life more cumbersome – you now need TDS confirmations for each non-equity mutual fund (dividend option) that you hold. (Luckily, now the system is automated, so your TDS credit is visible […]

By |September 2nd, 2010|DirectTaxCode, MutualFunds|8 Comments

India Direct Tax Code Bill Tabled in Lok Sabha

The Government introduced the Direct Tax Code Bill today. After some serious amount of searching, I found the bill online, after struggling with pages timing out, debugging communication messages and guessing IP addresses. (Read: It was darn easy in the end, but I had spent so much time I needed to make it look like it was a bloody difficult job).

What matters is not that I found it. What matters is what is in it.

First, this bill of the DTC applies from 1 April 2012, so heave a sigh of relief.

For salaried income: Deductions are Employment Tax, Travel allowance (currently Rs. 800 a month), actual reimbursements, employer’s contribution to pension [upto 10% of salary], retirement or provident fund [upto 12%].

Housing rent allowance is fully exempt, without the complex formula – now it is limited to the rent actually paid. Nice.

Property income: Only […]

By |August 30th, 2010|DirectTaxCode, IncomeTax|18 Comments

Reader Comments: Cannot Offset Long-term Capital Losses

Thanks very much for all your comments on the earlier post about the Direct Tax Code keeping equity gains tax free till Mar 2011. I’d then asked if losses would be grandfathered – i.e. should we book them before and carry them over. Reader Sirka Pyaaz says:

If you held a share for more than one year and sell it in the open market, the capital gains are exempt. So the law says ‘hey, im not taxing you on the gains, so im not gonna let you take the benefit of accumulating your losses’. Which is fair enough. This means both profits AND losses will be out of the picture. To overcome this, sell your stocks for a loss in an offmarket transaction. In that case, gains are taxable so losses will be allowed.

This seems to be consensus. But reader PX points out that the taxman won’t be very happy allowing an “off-market” transaction designed just to avoid tax, […]

By |July 21st, 2010|DirectTaxCode|7 Comments

Direct Tax Code Will Keep Equity Gains Tax-Free till April 1, 2011

NDTV says there’s a good thing in the new Direct Tax Code: (HT: Samarth Modi)

Equity investors should remain invested despite the new direct tax code proposing the return of the long term capital gains tax. At least that’s what the government wants investors to believe, finance ministry officials have told NDTV.

Investors holding long term shares till March 31, 2011, will not be subjected to the long-term capital gains tax. And April 1, 2011 may become the new cutoff date, to begin the calculation of the long-term capital gains.

This means, stock prices as on April 1, 2011 will be the new base price for computing capital gains tax.

Implications – you don’t have to do the sell-and-buy-back to avoid capital gains tax, since any gains upto April 1, 2011 will be tax free.

Of course, only if this is confirmed – we have to hear directly from the FinMin.

Note that this also means any stocks in which you have […]

By |July 19th, 2010|DirectTaxCode|11 Comments

Direct Tax Code: Book Profits and Buy Back?

With the Budget revealing that the Direct Tax Code will be implemented from April 2011, a few choices have to be made now. The DTC brings in capital gains tax back again – even long term capital gains, which don’t get “preferential” treatment as they have in the last few years. Long term capital gains – where the purchase is over a year ago – is currently NOT taxed, and earlier they were only taxed at 10% max.

From April 1 2011, all capital gains booked will be added to your income and taxed appropriately in your tax slabs. (Upto 1.6 lakhs – no tax, 1.6 to 10 lakhs – 10%, 10-25 lakhs – 20% and above that, 30%).

Then why is capital gains any different from other income? Answer: Long term gains are “indexed” – meaning, the government understands that when you sell an asset, you should consider inflation. If you bought something for Rs. 100 three […]

By |March 3rd, 2010|DirectTaxCode, IncomeTax, Stocks, TaxSaving|11 Comments