DIRECT TAX CODE BILL 2009 DIRECT TAX CODE BILL 2009
By Mr. S.C. Kalani HIGHLIGHTS
HIGHLIGHTS
INCOME-TAX ACT & DIRECT TAX CODE
The thrust of Code is to improve the efficiency and quality of the Indian Tax System by eliminating distortions in the tax structure, introducing moderate level of taxation and expanding the tax base. There is an attempt to simplify the language, remove ambiguity, provide stability and adopt best international practices.
In our times, we have earlier read about Income-tax Act,
1922, presently, working on Income-tax Act, 1961 and
now it is the Direct Tax Code which if approved and
passed will come into force from April 1, 2011.
INCOME-TAX ACT & DIRECT TAX CODE
The present Income-tax Act has 298 Sections and 14 Schedules.
The Direct Tax Code has 285 Sections and 18 Schedules.
The Income Tax Act has 48 definitions u/s.2, whereas the Direct Tax Code has a total of 318 definitions.
Some of the new definitions which have entered into
Direct Tax Code are :-
DEFINITION
Backward class which means such classes of citizens other than Scheduled Caste and Scheduled Tribe as may be notified from time to time by the centre or in State Government.
Disaster – As defined u/s.2(d) of Disaster Management Act, 2005.
General Public – Same meaning assigned in Section 96.
Public Servant – Same meaning as in Section 21 of IPC
1860.
DEFINITION
Scheduled Caste – Meaning assigned in Article 366 (24) of the Constitution.
Scheduled Tribe – Meaning assigned in Article 366 (25) of the Constitution.
India – Means territory of India as referred to in Article
1 of the Constitution. Territorial water, maritime zone,
air space, seabed and sub-soil below territorial waters.
DEFINITION
We generally know Fixed Assets but here under Direct Tax Code, there is a separate meaning for “assets” -
“Business assets, “Business capital assets,” “Business trading assets,” “Investment assets” and “New investment assets.”
There is even a separate definition for “Year” and
“Financial Year.”
RATE OF TAX
Proposed rates for individual:
Slab of Income Rate of Tax
0 to 1,60,000/- NIL
1,60,001/- to 10,00,000/- 10%
10,00,001/- to 25,00,000/- 20%
25,00,001/- and above 30%
NOTE:
Females below 65 years, the basic exemption limit Rs.1,90,000/-
Senior citizens, the basic exemption limit Rs.2,40,000/-.
For Domestic Company – 25%
Foreign Companies – 25%
Profit of Branch Office of Foreign Company – 15% .
RATE OF TAX
Slab Rate of Tax
Upto 10,000/- 10%
10,000/- to 20,000/- Rs.1,000/- + 20%
20,000 and above Rs.3,000/- + 30%
In case of every other Society 30%
In case of every non-profit
organization 15%
In case of unincorporated body 30%
In case of every local authority 30%
Co-operative Society:
RATE OF TAX
Particulars Rate of Tax
% For Non-resident - Investment income by
way of interest & dividend 20%
For Non-resident – On Investment income
– Capital Gains. 30%
For Non-resident - On any other investment
income 20%
For Non-resident – Royalty and technical
knowhow fees 20%
New Tax slabs:
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RATE OF TAX
Particulars Rate of Tax
% For Non-resident sportsman and Non-resident
Sports Association income by way of winning sports, advertisement,
contribution of articles to newspapers,
magazines, guarantee money in relation to any game
10%
Any Assessee on winning from lottery,
crossword, race, card game, gambling 30%
New Tax slabs:
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MAT
Tax on Book Profit - MAT
The rate of MAT will be 0.25% of the value of Gross Assets in case of Banking Companies and 2% for other Companies.
The “value of Gross Assets” will be aggregate of value of Gross Block of Fixed Assets , capital work in progress. The Book value of “all other assets” is on the last date of Financial Year as reduced by the accumulated depreciation and debit balance of Profit
& Loss Account.
No carry forward of MAT will be allowed.
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DIVIDEND DISTRIBUTION TAX (DDT)
The rate of DDT will be 15% of the amount declared by way of dividend.
Dividend which has suffered DDT will be exempt from tax in the hands of recipient.
If the Corporate Tax is brought down from 30% to 25%
then, I think the rate of DDT should also be brought
down from 15%.
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WEALTH TAX
Wealth Tax will be abolished for Corporates - TCL each year pays Wealth Tax between Rs.8 lakhs to Rs.12 lakhs.
Wealth Tax is chargeable for individuals, HUF and private Trust.
Wealth Tax @ 0.25% of net wealth will be charged if the value of wealth exceeds Rs.50 crores.
I think Wealth Tax should be abolished in total
considering the exempted limit of Rs.50 crores, as out of
population of 115 crores, there won’t be 50,000 people
whose wealth is above Rs.50 crores.
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RATES FOR TDS
Particulars Rate
of Tax Particulars Rate of
Tax
194C including transport contract,
advertisement contract
1% Non-compete fees and Royalty 10%
Interest 10% Rent for machinery, plant and
equipment 1%
Dividend (on which no
DDT is payable) 10% Rent for land, building, furniture
fittings 10%
Commission and
Brokerage 10% Winnings from lottery, crossword
puzzles, card games, horse race. 30%
Professional Fees 10% Any other Income 10%
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TDS in case of Non-residents
Particulars Rate
of Tax Particulars Rate of Tax
On Investment
Income 20% Income of Non-Resident
Sportsman. 10%
On Dividend on which no DDT has been paid
20% Winning from lottery and crossword puzzles, horse race, card games,
gambling, betting.
30%
On Capital Gains 30% Any other Income 35%
On Royalty, Fees,
Technical Knowhow 20%
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INCOME NOT INCLUDED IN THE TOTAL
INCOME – VI SCHEDULE (OLD SECTION 10)
The accumulated balance including interest of approved
Provident Fund Trust as on the 31
stday of March, 2011
including withdrawals / refundable / non-refundable
loans.
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RATES OF DEPRECIATION - BUILDING
Particulars Rate of Dep.
Particulars Rate of
Dep.
Residential building 5%
Furniture fitting including electricalfittings.
10%
Factory Building &
Office Building. 10% Vehicles, motor bus, motor
lorry, motor car 15%
Hospital Building, jetty, railway
platform
15% Rail – engine, coaches,
wagons 40%
Temporary Structure 100% Rail - rolling stock 15%
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RATES OF DEPRECIATION - BOOKS
Particulars Rate of Dep.
Library Books and annual publications. 100%
Other Books used for carrying out
business. 60%
Any other Books 25%
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RATES OF DEPRECIATION - PLANT & MACHINERY
Particulars Rate of Dep.
Air pollution control equipments, water
pollution control equipments, waste control equipments, salt pans, reservoirs, condensers made of sand or clay
100%
Scientific Research Assets 100%
Energy Saving Devices – Renewable energy
device 80%
Computers including software 60%
General Plant & Machinery 15%
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RATES OF DEPRECIATION – INTANGIBLE ASSETS
Particulars Rate of
Dep.
Intangible Assets viz. purchase of any right or franchise or license to operate the business or to use know-how patent, copyright or commercial right.
25%
Preliminary expenditure before commencement of the business or in connection with extension of business or in connection with setting up of new business.
25%
Assets or projects constructed, erected or set up by the Assessee
where assets are not owned by Assessee. 25%
(i) Benefit / advantage to Assessee over a period but not
exceeding l0 years. 20%
(ii) Benefit / advantage to Assessee over a fixed period
exceeding 10 years . 15%
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RATES OF DEPRECIATION –
DEFERRED REVENUE EXPENDITURE
Particulars Rate of
Dep.
Non-compete fees, premium for obtaining any asset on lease or rent, amount paid to employee under VRS Scheme, expenditure incurred for the purpose of reorganization of business.
25%
Expenditure incurred in relation to prospecting of mineral, development of mines or natural deposit of any minerals.
15%
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In Income-Tax we were using Assessment Year and Previous Year.
Now the concept of Assessment Year and Previous Year is replaced with a new concept of “Financial Year” which means a period of 12 months commencing from 01 April and ending on 31 March.
Resident status of an individual is to be determined on the basis of his status in India
Indian Company to be treated as resident in India
Foreign Company to be treated as resident in India if the control and management of its affairs is situated wholly or partly in India in the financial year.
Resident based taxation to be applied for residents and accordingly worldwide income to be taxed.
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Income to be classified into two groups:
(i) Income from ordinary source (ii) Income from special source
Income from Ordinary source will include:
(i) Income from employment (salary) and perquisites (ii) Income from house property
(iii) Income from business (iv) Income from capital gains
(v) Income from residually source (other source)
Income from Special Source to include specified income
(i) of non-residents viz. winning from lotteries, horse races, royalty and dividend on which DDT has been paid etc.
A separate schedule is given in DTC which provides working of taxable portion of income from special source.
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Income from house property shall be gross rent.
Gross rent will be higher than Contractual Rent or Presumptive Rent.
Presumptive Rent shall be 6% per annum of rateable value fixed by local authority or 6% of cost of construction or cost of acquisition.
Deduction of repairs and maintenance will be 20% of gross rent (as against 30% presently).
Deduction towards interest on housing loan on self occupied property not available
Service Tax payment is deductible from rent on payment basis.
Advance rent to be taxed in the financial year to which it relates.
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Employment income to be taxed on paid/accrued basis (I think this will create a huge problem as salary till now was deducted on payment basis)
We have in India three categories of assesses viz.
• Resident
• Non-ordinarily resident (NOR)
• Non-resident
Second category i.e. NOR to be abolished.
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All long term retiring saving schemes are to be exempt-exempt- taxed (EET).
Accretion to retiral funds on account of interest will be exempt from tax till withdrawal.
Contribution of employee and employer permitted upto Rs.3 lacs to retirement scheme.
Permitted saving schemes viz. PF, SAF, LIC, NPS, etc.
One can shift from one eligible scheme to another and shifting from one scheme to another is not be treated as withdrawal.
Aggregate deduction for long term eligible savings including tuition fees proposed to be increased from Rs.1 lac to Rs.3 lacs.
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Income from Business
Business expenditure to be classified into
• Operating expenditure
• Permitted financial charges
• Capital allowance
All assets are classified into business assets and investment assets.
Business assets further classified into:
• Business Trading Asset
• Business Capital Asset
Income from transaction in business asset to form part of business income.
Profit on sale of business capital asset , part of sale of an undertaking under a slum sale, profit on transfer of self generated business assets (patent,
trademark, goodwill) to be treated as business income.
Loss of sale of business capital assets to be treated as intangible assets on which depreciation will be allowed.
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CAPITAL GAINS:
Profit on sale of investment assets to be taxed under the heading Capital Gain
Gain / loss to be taxed in the year of sale and not in the year when the money is received).
Distinction between short term and long term investments removed.
Base year for determining cost of acquisition shifted from 01.04.1981 to 01.04.2000
Indexation benefit available if capital asset is held for more than one year
Security transaction tax to be abolished.
If the cost of acquisition and cost of maintenance of an investment cannot be determined then value shall be nil for the purpose of capital gain
Capital gain arising from transfer of personal effects and agricultural land excluded from ambit of taxation.
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Due date for filing of income-tax return in case of non- corporate assessee is June 30 and for other assesees August 31.
Assessment to be completed within 21 months from the financial year in which return is furnished.
Managing Director or manager shall be jointly and
severally responsible for the tax due of any company if
amount cannot be recovered from the company.
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BUSINESS ORGANIZATION
Re-organisation of business to be tax neutral.
Business re-organisation means re-organisation of two or more businesses involving amalgamation or de- merger.
Accumulated loss permitted to be carried forward
subject to continuity of business.
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INTERNATIONAL TAXATION
Furnishing of Tax Residency Certificate is now compulsory for claiming lower rate of tax under DTAA.
Till now the provisions of Double Taxation
Avoidance Agreement supersedes the provisions
of Income-tax Act. However, now the provisions
of DTAA and DTC have been brought on par. In
case of difference, provisions of DTC will prevail.
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INTERNATIONAL TAXATION
Outstanding tax amount of Non-resident can be recovered from any of his assets even situated outside India or any amount payable by any person to Non-resident.
Government to prescribe method for computing Foreign Tax Credit.
To avoid tax evasion through various Agreements with foreign parties, “GENERAL ANTI AVOIDANCE RULES” (GAAR) introduced.
Provisions of GAAR shall override the provisions
of Treaty where tax evasion is proved.
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TAX EXEMPTIONS
Present 80IA, 80IB, 80IC benefits for projects completed before April 1, 2011, to continue, viz.
Power Plant. - Creation of infrastructure facility, processing, preservation and packaging of fruits and vegetables, petroleum pipelines. - Setting up and operating cold chain facility. - Setting up and operating warehousing facility for storage of agricultural produce. - Exploration and production of commercial and development of SEZ.
The projects which start after April 1, 2011 will get
capital allowance viz. Cost of projects will be allowed
as deduction in the very first year.
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