Tax Law and Changes

Tax Laws are a well structured system of rules and regulations on levies, called taxes, imposed by the federal or state governments on various economic transactions of the state. It is a serious discipline of study closely interrelated with Law and is taught in business schools and colleges across the world.

Tax Laws are a well structured system of rules and regulations on levies, called taxes, imposed by the federal or state governments on various economic transactions of the state. It is a serious discipline of study closely interrelated with Law and is taught in business schools and colleges across the world.

Taxes levied may be progressive, regressive or flat according as whether it rises, falls or remains constant with rising levels of income. TL are framed against various categories such as income, expenditure, capital gains, property, wealth and gifts and remittances. Laws on tax rates are found to be substantially higher for direct taxes such as personal or corporate income tax whereas it is lower in case of indirect taxes like sales taxes where the incidence of taxation can be passed on to others.

Even as India is trying hard to simplify its complex and labyrinthine tax structure of winding laws and legislations, China has surprised the world by introducing two landmark changes in its tax laws on Mar 16, 2007 which aims to provide a better investment climate in the country and a relatively transparent tax structure which will make it simpler for the assesses to file their returns. The two changes in the Enterprise Income Tax Law and the Property Law effected by the National Peoples Congress gives equal protection under law to both public and private property for the first time since being a republic. Under the Enterprise Income TL, both Domestic and Foreign enterprises have to pay a uniform tax rate of 25% which was formerly biased for the domestic companies who only had to churn out a tax rate of 15% on their profits. This is seen as a conscious attempt by the Chinese authorities to make a level-playing field for both the domestic and the Foreign Invested Companies (FIE) which is predicted, on the contrary, raise 93 billion Yuan less for the government exchequer. More so, the standard concessions offered to FIE’s would be applicable after the sixth full year of profit-making, after a two year tax holiday and three years of paying half-taxes. However, some sops for investing in the backward regions and the newly set up Special Economic Zones still exist.

The Income Tax is arguably the most complex and misunderstood of the tax laws in India. According to the Indian Income Tax Act, 1961, the incomes and direct TL requirements of professionals like Chartered Accountants, Engineers, Lawyers, Company Secretaries, Corporate Managers as well as incomes of salaried individuals are liable for income taxes. Capital gains are also amenable to income tax under Sec.45 of the IT Act, 1961. Chapter III of the Act says that agricultural income is not liable for income tax.

The Income Tax Rules of 1962 have gone through substantial changes in the Finance Act of 1992 and with the Third Amendment of Rules for the year 2007 on the March 2007. In the Budget speech announced by the Finance Minister for the year 2007-08, the threshold limit for exemption was raised by Rs. 10,000 giving every assessee a relief of Rs.1000; whereas, with raising the exemption limit from Rs.135,000 to Rs.145,000 in case of women and from Rs.185, 000 to Rs.195,000 for senior citizens, the tax relief offered us Rs.2000. Deduction in respect of medical insurance premium under Sec. 80D of the Income Tax Act has been raised to Rs.15000 which is Rs.20,000 in case of senior citizens.

The surcharge on incomes for all firms and companies with an annual earning of Rs.1 crore or less is proposed to be removed. Concessions under Sec.80IA for infrastructure facilities is to be extended for gas distribution network facilities including storage facility linked to the network. Concessions under Sec. 35(2AB) have been extended for five more years until Mar 31, 2012. The Minimum Alternate Tax (MAT) has been extended to incomes under which deduction is claimed in Sec. 10A and 10B of the Income tax Act. The Central Sales Tax (CST) was also modified to 4% all over the country effective April 1st, 2007.

According to the Internal Revenue Service (IRS) of the US Department of Treasury, Federal Income Tax or taxes on incomes of legal entities can be levied on individuals, corporations, trusts, decedents’ estates and certain bankruptcy estates. The first Federal income tax was imposed during the 1860’s in time of the American Civil War. It was included in clause 1 of Sec 8 under Article I of the US constitution. It was again implemented in the 1890’s and again when the Sixteenth Amendment to the US constitution was ratified in 1913. Current income taxes are however, legalized under these provisions and various provisions of Subtitle A of the Internal Revenue Code of 1986.

Certain landmark changes introduced for the tax year 2007 include Adoption Credit allowable up to $11,390 for adoption of a child with special needs which will phase out if your modified adjusted Gross Income is over or equal to $ 170,820. The minimum exemption limit for a child under the age of 18 has been increased to $ 6300. Alternative Minimum Tax (AMT) exemption amount has been decreased to $33,750 which is $45,000 for married filing jointly or in case of qualifying widower and $22,500 for married but filing separately. However credit for child and dependent care expenses, credit for the elderly and disabled, education credits, residential energy credits are no longer allowed against the AMT. Hurricane Katrina additional fund has also been terminated. Steps are also being taken to itemize all charitable contributions.

This law in several countries have been modified with respect to the changing needs of the time to move towards a more rationalized and homogenized tax structure which is simple to understand and interpret for the common man.