Finance Minister of India Pranab Mukherjee, on 12 August 2009, unveiled the Direct Taxes Code Bill, 2009, to be introduced in Parliament later this year.
If enacted, the Bill will not only change the amount of tax you will pay and how but will also transform how you invest, borrow and spend your money. The unveiling of the Direct Taxes Code will be followed by Public debates before Parliament debates it.
It will not be before financial year 2011-12 that this tax code will be put in place, if passed by Parliament.
Even as experts examine the finer details of the said proposals of the new tax code, here are informations of the proposed changes:-
(1) One of the hallmarks of the new tax system is the substantial expansion of income slabs. For instances for an individual, annual incomes up to Rs. 1.60 lakh would be tax-exempt, a 10 per cent tax rate would be applicable for incomes between Rs 1.60 lakh and Rs 10 lakh, 20 per cent for income between Rs 10 lakh and 30 per cent for income above Rs 25 lakh. All this will mean significant tax savings when the code comes into force. The present income slabs are much narrower and the tax liability is significantly higher under the proposed Direct Taxes Code, the slabs have been significantly enhanced to take into account realistic income slabs.
If generosity marks the changes in income tax slabs, its absence marks other areas. Currently exempt allowances and benefits such as leave travel assistance and medical reimbursements would be fully taxable under the code. Existing tax benefit for interest payment on home loans with an annual limit of Rs. 1.3 lakh per individual is also in danger. This critical driver of the recent real estate boom will be withdrawn if the Direct Tax Code Bill is implemented. But if you have rented out your home that you don't occupy, you will continue to get the existing tax break for unlimited tax deductions for interest payments on loans taken to acquire. At the same time, removal of deduction for house rent allowance (HRA) has been proposed.
(2) The Direct Taxes Code Bill, 2009 has proposed changes in the taxability of capital gains hereasunder:-
1-Distinction between long-and short term gains to be removed.
2-All gains from capital assets like equity shares, mutual funds, physical gold, gold exchange traded funds and real estate to be taxable.
3-Gains made within a year to be added to income without indexation benefit.
4-Gains made after one year to be added to income after indexation benefit.
5-Securities transaction tax (STT) to .
The code may have done away with the numerous tax breaks, but it has still provisions for tax-saving investments. Its limit has been ascertained Rs 3 lakh per annum. But the trick is that you will be allowed to invest only in certain options-Public Provident Fund (PPF), Employees' Provident Fund, life insurance, superannuation funds and National Pension System (NPS), besides claiming for children's tuition fees expenses. This simply means no more tax breaks for National Savings Certificates Senior Citizen's Savings Scheme, tax-saving bank fixed deposits and equity-linked savings schemes (EISS) of MFs.
If has been proposed that the maturity proceeds of PPF and insurance be taxed. In case of insurance policies, there is an exception. Deduction will be allowed in respect of any sum received under a life insurance policy, including any bonus, only if the premium payable for any of the years during the term of the policy does not exceed 5 per cent of the capital sum assured and the sum is received only upon completion of the original insurance or upon the death of the insured.
The message is clear, you can get tax breaks for retirement savings or educational expenses. The existing tax breaks for health insurances with the existing annual limits of Rs. 15,000 and Rs 20,000 for senior citizens, as will as those for interest repayment for educational loans and notified donations will continue in the Bill too. Here is how taxable income will be calculated if the Direct Taxes Code Bill, 2009 is enacted:-
Gross Total income
(1) Income from employment.
(2) Income from house property.
(3) Income from business.
(4) Capital gains.
(5) Income from residuary sources.
(6) All income taxed at special rates, example-Capital gains on transfer of
shares/equity mutual funds.
Deductions
1- PPF, EPF, insurance, NPS, Tuition fees.
2- Medical donation, higher education.
Here are some major changes proposed in the Direct taxes Code Bill 2009 that have come to knowledge. In the days to come many more aspects may come to light for now, it will suffice to say that the gains from wider and simpler tax slabs, larger provisions of tax-advantaged long-term savings far outweigh the loss of the plethora of tax-savings.
Monday, September 21, 2009
Indian economy at the First anniversary of the Lehman Brothers Collapse
It is the first anniversary of the lehman Brothers collapse .
Lehman's filing for bankruptcy on September 15 last year triggered the near-collapse of the western financial system and sent the global economy into a tailspin from which it is only now beginning to pull out. The crisis had been building up form about the middle of 2007, when the US housing bubble got pricked.
In this context what become clear is that India was closely linked to the world economy-a global crisis meant an Indian crisis too. G D P growth tanked by 3 percentage points in the quarter after the Lehman collapse. Credit became scare, and exports them fell for 10 months in a row, the rate of fall being an extraordinary 25-30 per cent and more the steam went out of the stock market as share index levels dropped 60 per cent. The inflation curve dipped well below zero, jobs evaporated, and pay cuts became the order of the day. Loan delinquency rose to levels not seen in India as over-leveraged customers fell behind their schedule of payments for houses, cars and credit card bills. Businesses slipped into crisis mode, and many shrank visibly or changed hands. This slump had wiped out billions form the wealth of India's richest.
But in all the dust raised by the mayhem of a world in crisis, we have missed seeing the real story- which is the strength and bounce that is now there in the Indian system. In the worst quarter of the last two crisis years, immediately after the Lehman collapse, India's GDP growth was 5.8 per cent. Amazingly, that was the average growth achieved by India during the quarter-centaury before take off happened five years ago. So the worst is now what used to be the average.
India remains the second fastest growing economy in the world today, behind only China. This when, out of more than 40 of the largest economies in the world, only eight are growing-with Saudi Arabia, Egypt and Indonesia in the 4-5 per cent range, and Pakistan with 2 percent. Now, despite a widespread drought adding to the woes of the industrial recession. GDP growth in 2009-10 is still expected to top 6 per cent. Compare that with growth in pervious drought years. 4 percent in 2002-03 and 3.3 per cent in 1987-88. In the 1970s, GDP used to actually shrink in drought years (1972-73 and 1979-80). The message of resilience and buoyancy has been missed in the focus on the steady flow of bad news, from financial crisis to economic recession to agricultural drought.
If 6 percent is the new floor, then it is safe to say that the sustainable average rate of GDP growth could easily be 8.5 per cent. Indeed, that figure might be achieved as early as next year, because of the rebound form a poor crop year. It is to remember that the last two rebound years saw growth of 8.5 percent (2003-04) and 9.8 per cent (1988-89). In fact, in projecting average growth of 7.8 percent during the 11th plan period (2007-12) , the Planning Commission is implictely forecasting growth next year and the year after at 8.5 percent. In other words, once the drought and its difficult fallout are dealt with, good times should be round the corner.
Lehman's filing for bankruptcy on September 15 last year triggered the near-collapse of the western financial system and sent the global economy into a tailspin from which it is only now beginning to pull out. The crisis had been building up form about the middle of 2007, when the US housing bubble got pricked.
In this context what become clear is that India was closely linked to the world economy-a global crisis meant an Indian crisis too. G D P growth tanked by 3 percentage points in the quarter after the Lehman collapse. Credit became scare, and exports them fell for 10 months in a row, the rate of fall being an extraordinary 25-30 per cent and more the steam went out of the stock market as share index levels dropped 60 per cent. The inflation curve dipped well below zero, jobs evaporated, and pay cuts became the order of the day. Loan delinquency rose to levels not seen in India as over-leveraged customers fell behind their schedule of payments for houses, cars and credit card bills. Businesses slipped into crisis mode, and many shrank visibly or changed hands. This slump had wiped out billions form the wealth of India's richest.
But in all the dust raised by the mayhem of a world in crisis, we have missed seeing the real story- which is the strength and bounce that is now there in the Indian system. In the worst quarter of the last two crisis years, immediately after the Lehman collapse, India's GDP growth was 5.8 per cent. Amazingly, that was the average growth achieved by India during the quarter-centaury before take off happened five years ago. So the worst is now what used to be the average.
India remains the second fastest growing economy in the world today, behind only China. This when, out of more than 40 of the largest economies in the world, only eight are growing-with Saudi Arabia, Egypt and Indonesia in the 4-5 per cent range, and Pakistan with 2 percent. Now, despite a widespread drought adding to the woes of the industrial recession. GDP growth in 2009-10 is still expected to top 6 per cent. Compare that with growth in pervious drought years. 4 percent in 2002-03 and 3.3 per cent in 1987-88. In the 1970s, GDP used to actually shrink in drought years (1972-73 and 1979-80). The message of resilience and buoyancy has been missed in the focus on the steady flow of bad news, from financial crisis to economic recession to agricultural drought.
If 6 percent is the new floor, then it is safe to say that the sustainable average rate of GDP growth could easily be 8.5 per cent. Indeed, that figure might be achieved as early as next year, because of the rebound form a poor crop year. It is to remember that the last two rebound years saw growth of 8.5 percent (2003-04) and 9.8 per cent (1988-89). In fact, in projecting average growth of 7.8 percent during the 11th plan period (2007-12) , the Planning Commission is implictely forecasting growth next year and the year after at 8.5 percent. In other words, once the drought and its difficult fallout are dealt with, good times should be round the corner.
Doha Talks
Doha talks had collapsed in Geneva in July 2008 after India, among others, opposed agriculture subsidies, offered by rich nations to their farmers on the grounds that this distorts trade by making produce of developing countries costly.
The chief negotiators are meeting in Geneva on September 14 to restart the entire process, irrespective of the substantive gaps in negotiations in Geneva, to take the Doha round to its successful conclusion.
The Indian government had earlier clarified that the meeting, in which negotiators from over 35 countries would focus on " process rather than content " sos discussions on specific issues were avoided.
Developed countries had to do much more than pay a mere "lip service" for development dimension of the Round, which has been in discussion for lest seven years. without any breath through. WTO negotiations have been facing a road block since December 2008. In order to expedite progress on the Doha Development Agenda (DDA) under WTO (World Trade Organization), India has proposed simultaneous negotiations in services along with issues on agriculture and non-agriculture market access (NAMA).
The inclusion of negotiation on services along with the other contentious topics like agriculture and NAMA with help countries like India in bargain, giving them greater maneuverability in trading off gains in one area against concessions they may have to yield in other acnes.
Under the Hang Kong ministerial meeting in 2005, an understanding was reached between member countries like a sequential approach would be adopted with negotiations on agriculture and NAMA being prioritized.
The two-day informal meeting of trade ministers of 35 WTO- member countries will deliberate on the time-line to conclude negotiations on the Doha development agenda by 2010 and not trying to resolve the contentious issues. Various issues in agriculture and NAMA are yet to be sorted out.
Yet, despite the hurdles 153 WTO member countries will doubtless face in building unity, there's room for cautious optimism. India and the US have new leaderships with seemingly fresh perspectives. The G-20 has called for political will to meet Doha's 2010 deadline.
There is consensus on the need to resist protectionism at a time boosted trade can help accelerate economic recovery, global or national. Given the reality of global economic interdependence, the need for a fair, rule-based free trade regime is obvious. But all indications the world's major tradings blocks are back to thinking that, pitfalls notwithstanding, dogged multilateral engagement is the only way to achieve it. That is encouraging in itself.
The chief negotiators are meeting in Geneva on September 14 to restart the entire process, irrespective of the substantive gaps in negotiations in Geneva, to take the Doha round to its successful conclusion.
The Indian government had earlier clarified that the meeting, in which negotiators from over 35 countries would focus on " process rather than content " sos discussions on specific issues were avoided.
Developed countries had to do much more than pay a mere "lip service" for development dimension of the Round, which has been in discussion for lest seven years. without any breath through. WTO negotiations have been facing a road block since December 2008. In order to expedite progress on the Doha Development Agenda (DDA) under WTO (World Trade Organization), India has proposed simultaneous negotiations in services along with issues on agriculture and non-agriculture market access (NAMA).
The inclusion of negotiation on services along with the other contentious topics like agriculture and NAMA with help countries like India in bargain, giving them greater maneuverability in trading off gains in one area against concessions they may have to yield in other acnes.
Under the Hang Kong ministerial meeting in 2005, an understanding was reached between member countries like a sequential approach would be adopted with negotiations on agriculture and NAMA being prioritized.
The two-day informal meeting of trade ministers of 35 WTO- member countries will deliberate on the time-line to conclude negotiations on the Doha development agenda by 2010 and not trying to resolve the contentious issues. Various issues in agriculture and NAMA are yet to be sorted out.
Yet, despite the hurdles 153 WTO member countries will doubtless face in building unity, there's room for cautious optimism. India and the US have new leaderships with seemingly fresh perspectives. The G-20 has called for political will to meet Doha's 2010 deadline.
There is consensus on the need to resist protectionism at a time boosted trade can help accelerate economic recovery, global or national. Given the reality of global economic interdependence, the need for a fair, rule-based free trade regime is obvious. But all indications the world's major tradings blocks are back to thinking that, pitfalls notwithstanding, dogged multilateral engagement is the only way to achieve it. That is encouraging in itself.
The WPI Index
The base year for the current WPI (whole sale price index) series is 1993-94. It has 435 commodities in its basket, which includes 98primany articles, 318 manufactured products and 19 fuel and energy sources as well as lubricats.
But the basket is completely out of sync with current consumption trends. The WPI is illogical and outdated on various counts. Here are some outdated commodities incorporated in WPI index:-
Edible oils
Vanaspati Dalda, Rath, Suraj, Tarun, Panghat & Asoka
Toothpast
Forhans, colgate, cibaca.
Liquor
IMFL(Indian Made Foreign spirit) Double horse whisky, Kashmir Brandy No.1 Black Knight whisky, Diplomat Finest Selected whisky, Old Port Dix Rum.
The government says it is hard to draw up a more representative list of products because of problems in sourcing datas from as many as 5000 units.
But the basket is completely out of sync with current consumption trends. The WPI is illogical and outdated on various counts. Here are some outdated commodities incorporated in WPI index:-
Edible oils
Vanaspati Dalda, Rath, Suraj, Tarun, Panghat & Asoka
Toothpast
Forhans, colgate, cibaca.
Liquor
IMFL(Indian Made Foreign spirit) Double horse whisky, Kashmir Brandy No.1 Black Knight whisky, Diplomat Finest Selected whisky, Old Port Dix Rum.
The government says it is hard to draw up a more representative list of products because of problems in sourcing datas from as many as 5000 units.
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