Govt. proposes new tax code : Income tax relief expected but home and retirement benefits to take hit

The government today kick-started radical tax reforms by unveiling a draft tax code under which an individual will effectively not have to pay any tax on an income of up to Rs 4.6 lakh a year against Rs 2.7 lakh at present.

The ceilings on tax-free income will be raised to Rs 4.9 lakh in the case of women and Rs 5.4 lakh in the case of senior citizens.

The code proposes zero tax on an income of up to Rs 1.6 lakh but also provides for a tax deduction of up to Rs 3 lakh on bank fixed deposits and specified investments in small savings schemes, insurance and other savings instruments.

Over and above the Rs 3 lakh ceiling, taxpayers can claim deductions for money spent on children’s education, health insurance premia up to Rs 20,000 annually in the case of senior citizens (Rs 15,000 for the rest), medical treatment of up to Rs 60,000 annually for senior citizens (Rs 40,000 for the rest), and expenses up to Rs 1 lakh for disabled dependants.

But there’s bad news as well: there will be no tax break for buying an apartment (which qualifies at present for a tax benefit of Rs 1.5 lakh a year on interest payments). Moreover, withdrawals from retirement funds will no longer be exempt from tax.

Salaried individuals may also feel the pinch since all perks will now be included in the definition of taxable salaries.

Companies will have to pay tax at the rate of 25 per cent instead of an effective rate of almost 35 per cent at present. However, companies that pay minimum alternate tax (MAT) — a tax levied since 1997 on zero-tax companies — could face a big blow since the levy will now be charged on 2 per cent of their gross assets. Earlier, it was charged on 15 per cent of book profits.

2 years to kick in

The changes have been proposed in a tax code that seeks to replace the 48-year-old Income-Tax Act. The code has been put in the public domain for discussion. It will come into effect in about two years after it is passed by Parliament with changes.

Finance minister Pranab Mukherjee, who released the tax code along with his predecessor P. Chidambaram, said the bill could be tabled in Parliament in the winter session.

“It’s a simpler tax code and we expect it will usher in better compliance, better tax realisation and lead to far less litigation,” Mukherjee added.

Chidambaram said the tax code had been written from scratch and could be enacted by 2011, synchronising with the golden jubilee of the Income-Tax Act. The former finance minister had started work on the tax code three years ago.

Wealth tax

The ambit of wealth tax is being widened — and this could prove to be a huge blow to the super-rich. Wealth tax will be levied on a net wealth above Rs 50 crore instead of Rs 30 lakh at present but it will cover assets like shares.

However, the wealth tax rate is being slashed from 1 per cent at present to 0.25 per cent. “This has been done to ensure better compliance,” officials said. “Right now, it is a tax that everybody tries to avoid.”

Industry has been lobbying the government to scrap it since the government expects to raise only Rs 425 crore through wealth tax this year.

The direct tax code will obviate the need to introduce a voluminous Finance Bill every year along with the budget — a tiresome rite that former finance minister Jaswant Singh railed against recently during the budget debate. However, tax amendments will still require sanction from Parliament.

Political parties will be happy to learn that the new tax code allows tax deductions on campaign contributions by both individuals and companies, provided the donation amounts to 5 per cent of a person’s income or the profits of a company.

Source : The Telegraph

Proposed Income Tax Rates for Individuals

Up to Rs.1,60,000	Nil
From Rs.1,61,000 to Rs.10,00,000	10 Per cent (Income exceeds Rs.1,60,000)
From Rs.10,01,000 to 25,00,000	20 Per cent (Rs.84,000 + Income exceeds Rs.10,00,000)
Above Rs.25,00,000	30 Per cent (Rs.3,84,000 + Income exceeds Rs.25,00,000)

Proposed Income Tax Rates for Women-below 65 years

Up to Rs.1,90,000	Nil
From Rs.1,91,000 to Rs.10,00,000	10 Per cent (Income exceeds Rs.1,90,000)
From Rs.10,01,000 to 25,00,000	20 Per cent (Rs.81,000 + Income exceeds Rs.10,00,000)
Above Rs.25,00,000	30 Per cent (Rs.3,81,000 + Income exceeds Rs.25,00,000)

Proposed Income Tax Rates for Senior Citizens

Up to Rs.2,40,000	Nil
From Rs.2,41,000 to Rs.10,00,000	10 Per cent (Income exceeds Rs.2,40,000)
From Rs.10,01,000 to 25,00,000	20 Per cent (Rs.76,000 + Income exceeds Rs.10,00,000)
Above Rs.25,00,000	30 Per cent (Rs.3,76,000 + Income exceeds Rs.25,00,000)

Direct Taxes Code Bill

Discussion Paper

Income Tax Dept. Exam : Last Chance in Old Syllabus for partially qualified candidates. Update on Grade Pay Issue.

On 5^th Aug,2009 The Income Tax Dept vide Notification No.II for Dept Exam 2009 made it clear that those who have qualified in at least two of the basic four papers, i.e., Law(i&2), Book Keeping, O.T and O.P. will be given the last and final chance to clear the examination under the old syllabus. It is also mentioned that those who will remain unsuccessful, will have to appear in all papers under new syllabus from the year 2010 onwards.

View the Dept. Circular in this regard.

The exam will commence from 20^th Oct,2009 for both old and new syllabus.

ITEF’s Stand on the issue :

“The Examination on the old pattern was to be for all partially qualified candidates. Partially qualified according to us means are those who have qualified in any of the four basic papers i.e., IT law I & II, Book-keeping, Other Taxes and Office Procedure. The Directorate has decided that partially qualified means only those who have qualified in any two of the above mentioned four papers. This is not acceptable to us.”

Update on Grade pay and Infrastructure Fund Issue :

“ Neither on infrastructure fund nor on Grade Pay settlement has been brought about. The Secretary (Revenue) despite supporting our genuine concern on Grade Pay has not been able to make the Department of Expenditure to see reason.”

“Accordingly it has been decided to organize a walk out of 18^th August, 2009 from 12.00 Noon onwards.”

“On walking out on 18^th August hold demonstrations in front of all offices and the following telegram/savingram/fax sent to the Chairman, CBDT., North Block, Central Secretariat, New Delhi-110 001 and to the Secretary (Revenue), Govt. of India, Ministry of Finance, North Block, Central Secretariat, New Delhi -110 001.

Text of Telegram to Chairman:

PLEASE ADDRESS THE OBJECTIONS RAISED BY ITEF TO THE NEW EXAMINATION RULES AND ELEGIBILITY OF CANDIDATES UNDER THE OLD PATTERN. SETTLE THE SAME IMMEDIATELY

Text of telegram to Secretary (Revenue)

PLEASE GET THE ISSUE OF GRADE PAY FOR INSPECTORS, ADMINISTRATIVE OFFICERS AND PRIVATE SECRETARIES SETTLED AS PER THE GOVT. OF INDIA NOTIFICATION.”

Update on 11th August on Grade pay Issue.

All India Central Excise Inspectors' Association urged the Revenue Secretary to intervene in the Grade pay issue. He earlier had issued directions to convene another meeting in the 1st week of August 2009 to resolve the issue.

Following is the text of the letter.

AICEIA/PRES/2009 11.08.2009

To
Shri. P.V. Bhide,
Secretary (Revenue),
Ministry of Finance,
North Block, New Delhi.

Sir,
Sub – Upgradation of pay scales of Inspectors in CBEC & CBDT – Reg

A kind reference is invited to the meeting of officials of the Department of Expenditure and the staff representatives of CBEC & CBDT, convened by the Secretary (Revenue) on 23.07.2009 with regard to the up gradation of pay scales of Inspectors in CBEC & CBDT. In the said meeting Secretary (Revenue) had issued directions to convene another meeting in the 1st week of August 2009 to resolve the issue. I respectfully submit that the proposed meeting has not yet been convened. I humbly request the Secretary (Revenue) to intervene in the matter so as to settle the issue.


Yours faithfully


ARUN ZACHARIAH.P
PRESIDENT, A.I.C.E.I.A.

Copy submitted to:

The Joint Secretary (Admn)
Central Board of Excise & Customs,
Department of Revenue,
Ministry of Finance,
North Block, New Delhi.

Source : All India Central Excise Inspectors' Association.

IT/Central Excise Inspectors may get enhanced Grade Pay soon, AO/PSs will have to wait more.

The Revenue Secretary hold a meeting with service associations and officers of the expenditure department to resolve the long standing demand of granting higher pay for the inspectors. He pursued hard in favour of the inspectors but assured to discuss the similar case of AO & PSs later as that is a common case in various department.

The summary of the meeting is reproduced here.

“The Revenue secretary has convened a meeting of the representatives of the ITEF and the organizations in the CBEC along with the official representatives of CBDT, CBEC, Revenue H.Qrs and the JS (Per), Director (IC) in the Department of Expenditure, Ministry of finance. On behalf of ITEF, Com. KKN Kutty, Com. Ashok Salunkhe and Com. Amitava Dey participated in the discussion. The Revenue Secretary supported the cause of the Inspectors of Central Excise, Customs and Income tax Department and asked the officials of the Department of Expenditure to seek any clarification they require in the matter. Most of the discussion and queries revolved around the functional distinction between the Sr. Tax Assistants and Inspectors and the feeder cadres of promotion to the grade of Inspector. The Staff side stated that there had been no justification in dilly dallying the issue so long especially in the light of the notification issued by the Government. It appeared from the discussion that the Department of Expenditure was concerned of the financial and other repercussions a positive decision might emanate from the Assistants of the Central Secretariat and other similarly placed cadres. On behalf of the ITEF it was pointed out to them that the Department of Expenditure themselves had settled the issue of parity in the pay scale of Inpsectors of Revenue Department vis a vis that of the Para Military forces, CBI. IB etc. and besides the necessity of assigning higher grade pay for Inspectors primarily arises from the functional distinction between the merged cadres of Sr. Tax Assistants, O.S and Inspectors and there cannot be any parity in so far this issue is concerned with the personnel in the Central Secretariat.

In so far as the anomaly of grade pay for P.S and Administrative officers are concerned, the Revenue Secretary said that he would convene such a meting later after ascertaining the stand of the Department of Personnel in the matter as these are common categories.”

Source : Income Tax Employees’ Federation

The Revenue Secretary informed that the meeting was called to resolve the grade pay issues of Inspectors who seek an upgradation to the grade pay of Rs. 4600/-. As regards the pay issue of DOS & AO, he stated that it would be looked into later. He told the meeting that the Inspectors have started a lunch hour demonstration, which may lead to a strike, and he wanted to avoid that. He wanted to find a solution to the problem faced by the cutting edge level officers. The officials from the Expenditure Department indicated their reservation on the subject. The Revenue Secretary as well as the other officials in the Revenue Department clearly stated that the post of Inspector and Senior Tax Assistant cannot be merged due to functional considerations. Revenue Secretary repeatedly mentioned about his concern about the agitation programme already taken up by the Inspectors of CBDT and CBEC. He finally requested the Expenditure Department to resolve the issue in two weeks and asked to convene a meeting in the 1st week of August for this purpose."

Source : All India Central Excise Inspectors’ Association.

Budget boost to New Pension Scheme !

Tax concessions announced by Finance Minister Pranab Mukherjee have given a boost to the new pension system (NPS) with the number of subscribers rising to over 1,100 against 300 prior to the Budget.

"There has been a quantum jump in the number of subscribers after the Budget announcement. The number subscribers has increased to more than 1,100 from 200-300 prior to the Budget," a PFRDA official said.

The official also said that some public sector enterprises have shown interest in joining the NPS, which was opened to all citizens from May 1 this year.

"One or two public sector entities have approached us and they want their corpus to be managed by the NPS. However, discussions are at the preliminary stages and it would take a month or so for some clarity on the issue," the official added.

Earlier, the Indian Banks' Association has shown interest in the NPS for new bank recruits. Though no concrete decision has been taken so far.

In the Budget tabled in Parliament, the government said that self-employed persons subscribing to the NPS would be subjected to tax only at the time of withdrawal. Other subscribers are already under this kind of tax treatment.

The official added that the NPS has mopped up about Rs 1.2 crore till date.

The Budget also proposed to exempt the income of the pension trust from income tax and also the donor of dividend to the trust from dividend distribution tax.

It also said pension trusts will not have to pay Securities Transaction Tax (STT) if they invest in the securities market.

It also said the interim pension regulator will get Rs 8 crore to run an advertising campaign to familiarise people about the scheme.

Source : The Hindu/PTI

I-T department needs 9,000 more people in five years: CBDT report

The Central Board of Direct Taxes (CBDT) says it is badly short-staffed. Conservative estimates by a recent report of the special CBDT committee, sent to the government, has recommended that the income tax (I-T) department needs to recruit at least 8,965 officials within the next five years for smooth functioning. Their annual cost: Rs 150 crore.

The 8,965 officials include an estimate for an extra 760 sanctioned personnel in the Indian Revenue Service (IRS).

Apart from this, the department would have to create 42 posts of Principal Chief Commissioner of Income Tax (Principal CCITs), 74 CCITs, 116 Senior CCITs and Deputy CITs. “This would have to been done through simultaneous abolition of posts in other grades,” said the report.

However, these are just conservative estimates. The actual requirement of skilled manpower is much more, if the restructuring is done on the basis of three models presented by the report.

The department would require 61,000 additional officers and staff in the tax department if recruitment is done on the bases of ‘Revenue Collection Approach’, over 50,000 people under the ‘Expected Tax Payers Approach’ and nearly 15,000 people under the ‘Workload Management Approach’.

Additional staff would also be required for intelligence and investigation.

However, to limit the cost burden on the state exchequer, the report suggested a conservative way by giving additional responsibilities and suitably upgrading posts in the higher supervisory grades. This also aims to address the existing anomaly in the IRS cadre, where no posts exist in the upper two grades of Higher Administrative Grade and Apex Scale.

The CBDT, Department of Revenue, Ministry of Finance, is the cadre controlling authority for IRS (Income Tax) officers. Ideally, the cadre structure of each Group-A central service should be reviewed once in every five years, but there have been only four such reviews of IRS officials in the past three decades.

“It is an irony that despite being the highest source of revenue generation for government, lack of manpower and stagnation has plagued the tax department. The cost of tax collection, at 49 paise for every Rs 100 tax, is the lowest in the world. And it is only because the department is shockingly low on manpower,” said a senior CBDT official.

The official also added that adequate manpower could help reduce the tax burden on citizens by scaling-up revenue collection.

Quoting an earlier study by Indira Gandhi Institute of Development Research, the report stated that the potential tax loss in the country was over 50 percent of the tax actually collected during 2007-08, as Rs 8,58,264 crore are not accounted.

Consequently, there was a tax gap of approximately Rs 1,71,653 crore (assuming taxation at the median rate of 20 percent). ‘Black’ money amounted to over 18 percent in the economy and the department’s ability to curb tax evasion is correlated to manpower available for investigation, intelligence, assessment and other departmental work, goes the argument.

The report also said that Interpol had placed the size of hawala transactions in India at 40 percent of the country’s GDP.

Moreover, the pressure on the department had increased substantially with the rising challenge of tackling complex issues relating to taxation of e-commerce, mergers and acquisitions, special economic zones, international movement of capital, off-shore transactions and so on.

Many Assessing Officers (AOs) move their files without adequate diligence, as the workload is high. The report warned that if the number of Aos remained unchanged, the number of assessees per AO annually would increase to 11,490 and the scrutiny workload would increase to 230 by the end of 2013. An AO can handle a maximum of 150 scrutiny files in a year.

Assuming the historical growth rate between 2001-2002 and 2007-2008, the number of taxpayers is expected to grow 1.28 times to over 43 million in 2013-2014. Similarly, revenue, which had grown 4.55 times from Rs 69,198 crore in 2001-2002 to Rs 3,14,468 crore in 2007-2008, is expected rise to Rs 14,30,829 crore in 2013-2014.

At present there are over 33.6 crore registered tax payers in the country, roughly 3 percent of the population.

Source : Business Standard.