HIGHLIGHTS OF NEW DIRECT TAX CODE

The New Direct Tax Code prima facie looks like give common man much more relief to spend more by saving tax on income. Further for India Inc also its time to celebrate since surcharge will be removed and tax rates have been drastically reduce so giving more room for good dividend to investors / reinvest for expansion. This one can think as indirect stimulus by directly giving goodies for common man. Now there is a caveat, this draft Tax code will be discussed in parliament in the winter session and if it gets the green signal will be implemented for assessment year 2011. So we have atleast couple of years to live with current Tax structure.

Highlights of the Draft Tax Code Bill

1. Lowers the incidence of tax on corporate and individual incomes
2. Reintroduces wealth tax and capital gains tax, albeit at lower levels
3. Scope of income tax expanded to include value of perks, gifts, profit in lieu of salary and capital gains but excludes farm income.
4. Removal of most exemptions
5. All long-term savings to come under EET
6. Tax exemption to PPF and other pension schemes on withdrawals accumulated up to March 31, 2011.
7. The code proposes to abolish STT.
8. Capital gains on shares and securities to be taxed as income.
9. Distinction between long-term and short-term capital assets to go.
10. Wealth tax cap to be hiked to Rs 50 Lac.
11. Wealth to be taxed on net basis; Amount in excess of Rs50lac to be taxed at 0.25%
12. Moves the base year for calculation of capital gains tax to April 2000
13. Hike in tax deduction limit on savings to Rupees 3 lakhs
14. Higher income tax slabs, lowering net payable taxes.
15. Tax breaks on housing to be removed
16. Dividend will continue to be tax-free in the hands of investors
17. Effective corporate tax rate at 25% with no surcharge or cess
18. MAT to be levied on gross assets as against book profits now
19. MAT carry forward to be disallowed
20. Business losses to be carried forward indefinitely
21. No tax deduction on interest payable on any government security
22. Wealth tax liability to be discharged by payment of prepaid taxes
23. Income from certain transfers not to be treated as capital gains
24. Rationalization of taxes for all non-profit organizations
25. Annual disclosure of profits of non-life insurance businesses
26. Govt may enter overseas agreements for double taxation avoidance
27. No tax deduction on interest payable to banking firms and insurers

TAX RATE UNDER NEW DIRECT TAX CODE

  

The new Direct Tax code is only at draft stage and its still not approved.Under New Tax code its proposed to make tax structure simplyfied so main benefit will be given to individuals and corporates were tax rate have been reduced. however still this has not been approved so i expect that Tax rates for Individuals may again be modified from proposed levels. in case of corporates the tax will be reduced from current level of 30% besided surchage will be removed.
 
1.Tax Rates for Individual / HUF

Upto 1,60,000 :- Nil
1,60,001 to 10,00,000 :- 10%
10,00,001 to 25,00,000 :- 20%
Above 25,00,000 :- 30%

2.Tax Rates for Women Below 65 Years 
Upto 1,60,000 :- Nil
1,60,001 to 10,00,000 :- 10%
10,00,001 to 25,00,000 :- 20%
Above 25,00,000 :- 30%

3.Tax Rate for Co-operative Society
Upto 10,000 :-10%
10,001 to 20,000 :- 20%
Above 20,000 :- 30%
In Case of Any Other Society its 30% of Total Income

4.Incase of Non Profit Organization 15%
5.Incase of Every unincorporated body 30%
6.In case of Local Authority 30%
7.The Tax structure for Companies will done as follows
    (i) MAT will be based on asset value and not book profits
    In Case of Banking Companies 0.25% & Other Companies its 2%on the value of Gross Assets
    (ii) Normal Tax Rate is 25%
8.Dividend Distribution Tax is 15% whether interim / Final etc (Exempted in hands of Investors)
9.Tax On Branch Profit is 15%
10.Non Resident
  A. Investment income by way of
          • Interest :- 20%
          • Dividend (on which Distribution tax is not paid) :- 20%
          • Capital Gains :- 30%
          • Any Other Investment Income :- 20%
  B. On Income From Royalty / Fees for Technical Services :- 20%
 11. Non-resident sportsman, who is not citizen of India :- 10%
 On income by way of participation in India in any India game [other than a game the winnings here from are taxable under sub-item (b) of item 4] / sport / advertisement /contribution of articles relating to any game or sport in newspapers, magazines / journals in India
 12.Non-resident sports Association / Institutions :- 10%
On income by way of guarantee money in relation to any game (other than a game the winnings
Where from are taxable sub-item (b) of item 4) or sports played in India.
 13. Any Assessee :- 30%
Any lottery or crossword puzzle / race, including horse race (not being the income from the activityof owning and maintaining race horses) / card game or any other game /gambling or betting.

MOST EXPENSIVE CORPORATE FRAUDS.

1. ENRON
Enron’s collapse in 2001 from a company worth $63.4 billion, to one seeking bankruptcy reorganization, came as a shock to the general public. Considered to be a major accounting failure, it led to the dissolution of Arthur Anderson, one of the world’s largest accounting firms also. Over 15,000 employees of the corporate had most of their savings in stock, which fell from $83.01 in early 2001 to $0.01 in October 2001.
2. BERNIE MADOFF
On June 29, 2009, Bernie Madoff was sentenced to 150 years in prison, the maximum sentence that could be given to anyone convicted of corporate fraud. He ran an amazing ‘Ponzi” scheme for his clients, showing falsified profits, and gains with the money that they had given him for investment. SEC authorities believe the actual net fraud will be between $ 14 - $17 billion.
3. SUBPRIME MORTGAGE CRISIS
This was not the crisis of a single corporate but it led to the demise of many other corporate. The repercussions can still be felt throughout the US and even Europe. It has had an adverse effect on most of the banks and financial institutions, and has led to large scale reform in the financial sector rules and regulations. It’s pertinent to mention that crisis had washed out trillion’s of dollar effecting USA and European banks at large.
4. SATYAM COMPUTERS
India’s biggest corporate scam was disclosed when Ramalinga Raju, the CEO of company declared that profits had been overstated for many years. Inflated bank figures, understated liabilities and over 10,000 non-existent employees were among the many fraudulent practices being indulged in to cross 7000 crone rupees.
5. WORLDCOM
On July 21, 2002, when WorldCom filed for bankruptcy under Chapter 11, it was USA’s largest corporate failure. The accounting scandal covered $ 11 billion and it seems the workings of the company were masked by painting a false picture of growing profits and margins. In 2004, it emerged from the bankruptcy proceedings with $5.7 billion in debt and $ 6 billion in cash.
6. BARLOW CLOWES
One of England’s largest corporate scandals, it led to the collapse of the company, after it was disclosed that it’s co-owner Peter Clowes, had spent over $100 million of his clients money in items such as luxury yachts, private aircrafts and cars. A gilts management service, in the 1980s, it controlled millions of pounds of it’s clients funds.
7. DAEWOO
Prior to is dismantling in 1999, Daewoo was the second largest corporate in Korea. It collapsed due to bad financial management, due to the worldwide financial crisis and due to growing labor unrest. The collapse led to losses in billions of dollars and became a political crisis.
8. FANNIE MAE and FREDDIE MAC
Before their collapse in 2008, these two companies owned more than half of USA’s $ 12 trillion mortgages. In September that year they had to be placed in conservatorship by Federal Housing Finance Agency, as “one of the most sweeping government interventions in private financial markets in decades”.
9. AIG
An American Insurance Company, AIG went into a crisis mode when in 2008, its credit rating were downgraded to below “AA’ levels and they were unable to access any funds to tide over their crisis. Once the 18th largest company in the world, it’s disclosure of financial losses and frauds, led to its downfall.
10. PHAR-MOR
In 1992, Phar-Mor had over 300 stores and over 25,000 employees. It ran a successful chain of discount drugstores throughout America, and it ran on a policy of small profits, but large quantities of merchandise. However, the owners in 1992 were accused of large scale embezzlement, deceptive inventories and fudged data.  (Sources by websites)