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Thursday, August 22, 2013

Taxes, more taxes - super rich tax and.... bedroom tax..

One certainty in life is ‘taxes’ - direct and indirect and more…… if you aren’t paying them directly from your salaries, the commodities that you buy become dearer and you end up spending more on them….  Do you know the reason why homes are left empty and untenanted since April this year ~ and why people are leaving bigger homes to live in smaller ones, while some face demolition threat…… ???

Today there is news that the Govt is proposing a higher levy for the super-rich under the new direct tax law, including a 35% levy on those earning more than Rs 10 crore and a heavier burden for people with wealth of more than Rs 50 crore.  TOI reports that the Direct Taxes Code (DTC) Bill that will replace a 50-year-old legislation is to be discussed by the Union Cabinet on Thursday, four years after discussions first began. While the tax slabs will also be reworked, the details will be disclosed by the government in Parliament. In case of wealth tax, the government will propose to increase the threshold to Rs 50 crore, from Rs 15 lakh currently, with the levy pegged at 0.25%. 

But against the existing definition that focuses on immovable assets, apart from jewellery, cash and cars, the government has decided to end the bias in favour of financial assets like shares. Through the new definition, the government has proposed to include financial assets within the ambit of wealth tax, arguing that conservative investors should not be penalized. Although the government has suggested a higher levy for those with an income of over Rs 10 crore, the impact will be marginal, given that this year onwards, those earning Rs 1 crore or more have been slapped with a surcharge that makes the effective tax rate 33%.

Sources told TOI that the government has accepted 153 of the 190-odd recommendations made by the parliamentary standing committee headed by former finance minister Yashwant Sinha. The committee had suggested raising the income-tax exemption limit from existing levels of 10% for Rs 2-5 lakh, 20% for Rs 5-10 lakh and 30% for Rs 10 lakh & above. The first draft prepared byChidambaram in 2009 had proposed slabs of Rs 1.6-10 lakh, Rs 10-25 lakh and Rs 25 lakh and above and corporate tax of 25%. Since then major modifications have been undertaken including continuing with most of the tax benefits available to individuals.

So there could some news impacting you and me….. I am not perturbed by the super tax……………….. ! The empty homes is not a phenomenon here but in UK – and mind you most of our tax systems and law are modelled on UK.

It is the news about ‘Bedroom tax’ that has caused large number of properties remaining untenanted.  It is stated that at least 660,000 of the nation’s most vulnerable families have been hit by the tax. Tenants have to make up 14 per cent of their rent for one extra bedroom and 25 per cent for two. To avoid the threat of demolition and higher taxes, housing associations were planning to alter larger homes to cut the number of bedrooms and decorate others to make them more appealing.

In Britain, effective April 2013 – Govt had introduced new rules to restrict the amount of benefit that one can claim for each bedroom, when house is rented. The amount of claim is to be based on the number of people per household.   Going by that  for  one 'spare' bedroom, housing benefit will be cut by 14% of the rent  per week. Those having two or more spare bedrooms will lose 25%. Those who would be affected are those
•        16 to 61 years old
•        availing housing benefit even if small, and
•        even if  one is  sick or disabled.
Those groups of people affected will include: separated parents who share the care of their children and who may have been allocated an extra bedroom to reflect this.

Called under various names ~  'size limit rules', 'under-occupancy' or 'under-occupancy rules' – the bedroom tax means that people won't be able to get housing benefit to pay for all of the  rent if  home has 'spare bedrooms'. The new limit on the number of rooms one can claim for is based on the number of people living in one’s home. If one has more bedrooms than the new rules say one needs, they will be treated as ‘under-occupying’ your home ~hence will  get less of your rent paid for by housing benefit. For those, where housing benefit no longer covers the full cost of the rent,  one will have to pay the rest of the rent themselves directly to the landlord.  

Primarily this is cut on assistance by State towards housing rent… and may not be replicable in India where people pay rent on their own…. but if somebody misinterprets, don’t be surprised if you are taxed based on the sq.ft of place that you occupy for your family.

With regards – S. Sampathkumar.
22nd Aug 2013.

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