Despite some weak protests from the BJP the direct tax code in its full avataar has passed through the Rajya Sabha.

Now it will go to a committee and then should pass muster at the Lower house also. It is one of the worst interruptors of the whole process of compounding – taxing the capital gains at the same rate as your income. The government is just looting us in 2 ways – by keeping the inflation high we will erode our wealth, and then we pay tax on that eroded wealth. Of course this is good to great news for my CA friends – the old game of HUF, Association of Persons (AOP), and numerous private limited companies will all come into play :).

Please do not rejoice the so called EEE for your PPF, voluntary PF, life insurance policies etc. If you are about 30 years of age, by the time YOU need to withdraw it will be in the EET mode.

Those who have not appreciated the impact of inflation in the wealth destruction process, the stupid way of calculating the ‘total salary’ ….etc. can rejoice. Otherwise this is quite a bad act.

Yes those whose taxable¬† income is less than Rs. 10 lakhs can feel better…

http://in.biz.yahoo.com/100826/139/baw5td.html

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  1. Very well said. Its shameful to see that we began the DTC bandwagon with an initial target to saving around 2 lakhs which has now come down to 25,000 Rs. The current DTC is so different from the original proposal – it almost looks like that we float policies only to screw it so badly that it looses it sheen. quite a disappointment.

  2. There is some relief though for LTCG, only certain percent of the CG will be taxed. Plus that percent depends on years it was held. But anyway its irritating that LTCG is taxed!

  3. Some major newspapers are saying that this acts brings relief for salaried class. I do not understand how moving LTCG to EET is beneficial!! Secondly, there has been only a minor shift in the tax brackets. Overall, it looks like that we will end up paying more tax and smaller savings. Really disappointed !!

  4. When the government gets greedy, you cannot do much especially if you are honest. Or if you have no choice but to be honest.

    When STT was introduced, they said cap gains is GONE. Now cap gains is back, but STT stays – saying they are different things. FBT one of the worst pieces of Australian legislation was copied – without the corresponding Social Security. P C is a great man – he loves to complicate thus helping lawyers and CAs. Pranab is a guy who is just taking it forward. Along with his busy schedule the PM went thru’ the DTC and put his foot down on EET for Provident fund (thanks MMS).

    Am quite surprised that the industrialists (including Narayanmurthy) have not lobbied against wealth tax and cap gains tax. However he has not touched dividends -which gets taxed at 14%. Hopefully cap gains will also get taxed at 14% – considering that he has promised something…not sure.

    The worst thing is people having to maintain records….and of course interrupting the compounding

  5. “Or if you have no choice but to be honest”

    i like this comment.i find statements such as ” i am a proud tax payer or am contributing to the nation by paying taxes” as ignorant of reality.there is no nation building happening. the govt just consumes(spends away carelessly) the capital of productive people -by doling out the money to special interests -both rich and poor.icreasingly to the richest (free land ,electricity and loans anyone?).
    i hate paying taxes and the only reason i pay is because they’ll put me behind bars if i didnt.there is no service provided,no security provided and all the silly ICBMs and nuclear duds are useless against the al qaida and LETs of the world.taxation is extortion ,anywhich way you look at it.

  6. Subra,
    “The worst thing is people having to maintain records”.
    I remember they wanted the public to maintain a cash flow statement…

  7. actually I am not against maintaining records. I am against a babu who will pick holes, make you prove you have done FIFO, ask you to prove the bonus ratio or the split ratio, ask for contract notes..Just for my records I would be happy with e-contract notes. Now you will have to print, serialise,..preserve – making it more difficult for my CA – whom I do not pay well :). Sad for him.

  8. Subra sir,

    Glad to read your article. I fully agree with you that Government, by pursuing inflationary policies and with taxation (on income as well as capital gains), makes it very difficult for retail investor to create long term wealth for self. However, we do not have control on process of governance. Hence, we will have to aceept high inflation and high taxation as reality and think about the ways to handle this situation. It is also not feasible for retail investor to get into convoluted things like setting up private companies etc. so, which is the best way to manage this situation in your opinion? I think dividend investing is the best way in current scenario as dividends remain tax exempt and dividend distribution tax on companies is moderate compared to personal income tax bracket of high wage earners. I would like to know your opinion about the same. (Of course, it is different story that Government can always remove exemption of dividend in future.) Another way is to get leveraged in property and rely on rents as well as debt eroding effect of inflation to be ahead in the game. However, this also seems fairly convoluted to me. Your opnion please.

  9. hi KalpK,

    not sure about anybody’s interpretation. Will wait for the full text to be tabled in the parliament. Once an alligator gets a leg…it normally ends up eating it.

    If Pranab found an easy way of earning a few bucks..he will not give it up so easily. However there was (is) a lot of vested interest against cap gains – all the big wigs would have protested – ..still wait for the full draft before starting to rejoice. Channels for trust worthy news and views…hmmm…not for me.

  10. The entire Direct Tax Code is an act to legalize Congress curruption. They are taxing equity investors and where will this money be spent – more new scams! It is time to uproot Congress and hope the next government will abolish this rubbish Direct Tax Code.

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