Transcript PRESENTATION ON DIRECT TAX CODE 2010 ORGANISED BY University Of Petroleum and Energy Studies, Dehradun ON DEC 14, 2012 AT UPES- Dehra Dun Presented by: CA Verendra Kalra DIRECT TAX CODE 2010 The.

PRESENTATION ON
DIRECT TAX CODE 2010
ORGANISED BY
University Of Petroleum
and Energy Studies,
Dehradun
ON
DEC 14, 2012
AT
UPES- Dehra Dun
Presented by:
CA Verendra Kalra
DIRECT TAX CODE 2010
The much talked about Direct Tax Code (DTC) was proposed to
replace the Income Tax Act from April 1, 2012. The new tax code
aims to make the system more efficient and easy for tax payers,
with simplified rules and regulations.
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The DTC proposes substantial changes to the current direct tax
legislation and is likely to have significant impact on the business
community. The proposed DTC is a combination of major tax
relief and removal of most tax-exempted benefits.
The various twists and turns are highlighted below:
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August 2009
June 2010
August 2010
April 2011
March 2012
August 2012
Draft legislation and discussion paper issued for
public comments
Revised discussion paper brought in
DTC bill, 2010 introduced in parliament
DTC misses deadline
Standing Committee tables its report on the DTC in
parliament.
Implementation of DTC postponed to April 2013
P.Chidambaram takes over as finance minister, DTC
Bill to be reworked.
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DIRECT TAXES
1.
SALIENT FEATURES
1. Single Code for Direct Taxes
All the direct taxes have been brought under a single Code and
compliance procedures unified.
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2. Assessment Year
Under the Income Tax Act, concept of Assessment year and
previous year prevailed where assessment year means the period
of 12 months commencing from the first day of April every year.
Previous year is the financial year immediately preceding the
assessment year.
Under the Direct Tax Code there is no concept of ‘assessment
year’ or ‘previous year’. Only the “Financial Year” is being
mentioned.
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3. Residence in India
Under the Income Tax Act, an individual’s residential status was
determined as follows:
Individual
Resident
Ordinary
Not Ordinary
Resident
Resident
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Non-Resident
Non-Resident
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4. Due Date for filing Income tax Returns:
Under the Income Tax Act the due dates for filing Income Tax Return
are as follows:
Where the assessee is:
 Company
 Accounts of assessee are to be
audited
 Working partner of a firm whose
accounts are to be audited under
Income Tax Act
Any Other assessee
30st September of the
Assessment Year
31st July of the
Assessment Year
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DIRECT TAX CODE 2010
Under the Direct Tax Code the due dates for filing Income Tax
Return are:
If the person is not a company and
does not derive any income from
business
In all other cases
30Th June following the
Financial Year
31st August following
the Financial Year
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MAIN HEADING: CALIBRI 48
2. CLASSIFICATION OF INCOME
For the purpose of computation of total income of any person
for any financial year, income from all sources shall be classified
as follows:
a. Income from ordinary sources
b. Income from special sources
The special sources (specified in a separate Schedule) generally
reflect items like:
 Royalty,
 Fees for Technical Services (FTS),
 investment income etc.
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MAIN HEADING: CALIBRI 48
All other sources of income will be ordinary sources.
 Special sources would be subject to tax on the gross
amount.
 The Total Income of the taxpayer for a financial year will
be
‘Total Income from ordinary sources’ + ‘Total Income from
special sources’
 Further the income from ordinary sources will be divided
into:
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MAIN HEADING: CALIBRI 48
Income from
Employment
Income from
Residuary
Sources
Income from
House Property
Income from
capital Gain
Income from
Business
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3. TAX RATES
Individual (Other than senior citizen)/HUF/Artificial
Juridical Person
UNDER DIRECT TAX CODE-
Income Range
Upto Rs. 2,00,000
Rs. 2,00,000 to Rs. 5,00,000
Rs. 5,00,000 to Rs.10,00,000
Above Rs. 10,00,000
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Tax Rate
NIL
10%
20%
30%
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Companies
UNDER DIRECT TAX CODETax rate in case of all companies is proposed at 30%. No surcharge
and no education cess is proposed.
A foreign company is required to pay an additional branch profits
tax of 15%.
Note: Branch profit is the income attributable, directly or
indirectly, to the Permanent Establishment or an
immovable property situated in India.
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UNDER INCOME TAX ACT
For AY 2012-13
Domestic companies are taxable @32.445% where
income exceeds Rs. 1 crore.
Foreign companies are taxable @ 42.024% where
income exceeds Rs. 1 crore.
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4. Major Changes under the different heads
A. Income from Employment
• Leave travel concession
Under the Income Tax Act leave travel concession received in
respect of travel expenses for self/family was exempt subject
to certain conditions. However, The Leave travel concession
exemption has been removed under the Direct Tax Code.
• Medical Reimbursements
Under the Income Tax Act medical treatment in specified
hospitals is not taxable, nor is payment of medical insurance
premium. Moreover reimbursement of medical bills is
exempt up to Rs. 15,000.
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DIRECT TAX CODE 2010
The Direct Tax Code proposes to raise the tax-free limit for the
medical reimbursement from Rs. 15,000 to Rs. 50,000.
Impact
So, there is continuation of exclusion of medical facilities out
of perquisite net. Increase of medical expenses
reimbursement limit to Rs. 50,000 is commensurate to the
increased medical costs.
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DIRECT TAX CODE 2010
• Pension
The difference in exemption for commuted pension between
Government employees and non-government employees is
proposed to be done away with. All employees will enjoy
exemption up to one-third of commuted value of pension (if
gratuity received) and exemption up to one-half commuted
value of pension (if gratuity not received).
Impact
The exemption to commutation of pension received under
pension scheme of insurers under Income Tax Act is proposed to
be withdrawn, displaying unnecessary bias against the selfemployed class.
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• Under the Direct Tax Code Tax exemption at all three stages
(EEE) —savings, accretions and withdrawals—to be allowed
for provident funds (GPF, EPF and PPF), NPS (new pension
scheme administered by PFRDA), Retirement benefits
(gratuity, leave encashment, etc.), pure life insurance products
& annuity schemes.
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DIRECT TAX CODE 2010
B. Income from House Property
• Annual Letting Value
Under the Income Tax Act, house property (other than self
occupied) income is taxed on deemed rent basis, even if not
actually let out.
Under the Direct Tax Code, house property income is
taxable only where rent is actually received/ receivable.
Impact
The hardship of taxation on notional basis through above
provision gets removed.
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• Standard deduction
Under the Income Tax Act deduction of expenses for repair
and renewals in regard to property income is allowed @ 30%
of gross rent.
Under the Direct Tax Code the deduction has been reduced to
20% of gross rent.
Impact
In view of the increased cost of construction the proposed
reduction from 30% to 20% is of an arbitrary and ad-hoc
nature.
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C. Income from business
• An important change proposed by the DTC 2010 under this
head of income is that every business will constitute a separate
source of income, necessitating separate computation of
income for each business.
• Tax Audit
Under the Income Tax Act the threshold limit of total sales,
turnover or gross receipts, for obtaining a mandatory tax audit
report are as follows:
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DIRECT TAX CODE 2010
Assessment
Year
AY 2012-13
AY 2013-14
Person carrying
on business (Rs.)
60,00,000
1,00,00,000
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Person carrying
on profession
(Rs.)
15,00,000
25,00,000
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DIRECT TAX CODE 2010
Under the Direct Tax Code the limits of turnover/gross
receipts for applicability of tax audit is proposed to be Rs.1
crore in case of business and Rs.25 lakh in case of
profession.
• Taxation of foreign company
Under the Income Tax Act Section 6(3) of the Act states that
a company would be regarded as resident in India only if
during the year its control and management of affairs is
situated wholly in India.
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DIRECT TAX CODE 2010
Under The Direct Tax Code Section 4(3) of the Code,
a company is regarded as resident in India, if, its
place of effective management, at any time, in the
year, is in India. “Place of effective management” is
defined under section 314(192) of the Code, which
states:
“(i) The place where the board of directors of the company or
its executive directors, as the case may be, make their
decisions; or
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(ii) In a case where the board of directors routinely approve
the commercial and strategic decisions made by the
executive directors or officers of the company, the place
where such executive directors or officers of the company
perform their functions.”
The aforesaid definition read with provisions of section 4(3)
of the Code implies that when at any time during the year, a
foreign company takes such strategic decision in India, it
would be considered as a resident in India.
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In effect, if foreign companies are effectively managed from
India, they would be treated as residents and their global
income would become taxable.
Impact
Under the Code, on bare reading of the provisions, if even for
a single day, it is established that effective control/
management was in India, such company would qualify as
resident of India and would be subject to tax in India on
global income and such a situation could lead to potential
double taxation.
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• Maintenance of Books of Accounts
Under the Income Tax Act Section 44AA provides for
maintenance of books of accounts. Following persons
are required to maintain books of account as
prescribed by Rule 6F.
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Person carrying
profession’
on
whose gross receipts in the profession
 Exceeds Rs. 1,50,000 in all 3 years
immediately preceding the previous year.
‘specified  Where profession is newly set up in
previous year, his gross total receipts for
that year likely to exceed Rs. 1,50,000
Whose
 Income from such business or profession
exceeds Rs. 1,20,000, or
Person carrying on ‘non-specified  Total gross sales, turnover, or gross
profession’ which includes
receipts are in excess of Rs. 10,00,000
 When the business or profession is newly
set up, income /total sales etc. are likely
to exceed the aforesaid amount.
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Clause 87 of Direct Tax Code seeks to provide for the system and
procedure of maintenance of accounts. The clause provides
Any person carrying on legal, medical, engineering, architectural, accountancy,
technical consultancy, interior decoration or any other notified profession or
carrying on business shall keep and maintain such books of account if
(i) his income from the (ii) his total turnover or, (iii) his income or, total
business exceeds Rs. gross receipts as the turnover as the case may be,
2,00,000
case may be, in the his in a case of a newly set up
business exceeds Rs. business in any financial year,
10,00,000 in any one of is likely to exceed Rs.
the 3 financial years 2,00,000 or Rs. 10,00,000
immediately preceding respectively, during such
the relevant financial financial year.
year
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DIRECT TAX CODE 2010
• Minimum Alternate Tax
Under the Income Tax Act MAT rate is 18.5 %(exclusive of
surcharge where income exceeds Rs. 1 crore and education
cess) . Tax credit for MAT paid is available for 10 years.
Under Direct Tax Code MAT is proposed to be levied on
companies @20% of book profit, as compared to 18.5% under
the present act. However, the credit for MAT paid would be
allowed to be carried forward for up to 15 years, as against
the present permissible period of 10 year, to be set-off against
the excess of tax payable in the years in which tax computed
under the normal provisions exceeds the tax on book profits.
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D. Income from Capital Gains
•
Transfer of asset
In Income Tax Act under section 50C, the assessee is allowed
to claim before the Assessing Officer that the valuation
adopted by the stamp duty authorities exceeds the fair
market value on the date of transfer. If the stamp duty value
is not disputed in appeal or reference or revision before any
other authority/Court/High Court, the Assessing Officer may
refer to Valuation Officer to determine the fair market value
of the asset. This right of the assessee is sought to be taken
away by the Code.
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Under Direct Tax Code transfer of any investment asset
being land or building, the Code proposes to take the stamp
duty value as the full consideration received or accruing on
transfer. This is irrespective of whether the consideration
shown in the agreement is higher or lower than the stamp
duty value and irrespective of whether the stamp duty value
exceeds the fair market value on the date of the transfer.
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• Capital Gain on short term listed equity shares or units of
equity oriented fund
Under the Income Tax Capital gains on listed equity shares or
units of equity oriented fund held for less than one year, on
which STT is paid, is taxable @ 15%.
Under Direct Tax Code capital gain on listed equity shares or
units of equity oriented fund held for less than one year
would be taxable at 50% of the applicable rates i.e. the rate
would be 5%, 10% and 15% for a person falling under the
10%, 20% and 30% slab brackets, respectively i.e. only half of
the short term capital gain will be taxed.
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In case of companies, the rates of Capital Gains would be
15%.
• In case of other assets benefit of indexation was available if
the investment asset is held for a period of 3 years under the
Income Tax Act.
However under the Direct Tax Code if the investment asset is
held for more than one year from the end of the financial
year of acquisition, benefit of indexation would be available.
The base date for indexation would be 1.4.2000.
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E. Income from residuary sources
Presently, if rural agricultural land is received by an individual
or HUF without consideration, the same is not liable to tax
under section 56(2)(vii) of the Act as income from other
sources. This exemption is sought to be withdrawn by the
Code.
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5. Set off and carry forward
Income from Ordinary Sources
• Any loss from business, house property or residuary source
is eligible for set off against income from employment' or
capital gain from any investment asset (it may be noted that
any gain or loss from business capital asset is treated as part
of business income/loss). However, no loss from any
ordinary source is eligible for set off against income from
any of the special sources.
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• Loss from house property is eligible for set off even after carry
forward against any income, except income from special
sources.
• Similarly, loss from business could be set off against salary
income, which is contrary to Section 71(2A) of the Income-Tax
Act, 1961.
• No time limit for carry forward and set off: No time limitation
is put for carry forward of losses for set off in the subsequent
financial years in the DTC and hence it seems that a loss
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quantified under DTC under any head is eligible for carry
forward and set off indefinitely without any time limitation.
However, the eligibility for carry forward of loss is subject to
filing of return within the prescribed due dates mandated by
Section 67 of the DTC.
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Income from Special Sources
• Income from special sources are clearly spelt out in Part 3 of
the First Schedule to DTC and it covers winnings from lottery or
crossword puzzle, income from horse racing, card game or any
other game, gambling or betting. Additionally, the schedule
covers income of non-residents from income by way of
interest, dividend (on which no DDT was paid), non-resident
sportspersons who are not citizens of India and non-residents
sports association or institution.
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•
Incomes from special sources are liable for flat rate of tax
similar to present status with no basic exemption limit
whatsoever.
•
The current income from the special source shall be
aggregated with the unabsorbed preceding year loss from the
special source, if any; and the income so aggregated shall be
the gross total income from the special source, for the financial
year.
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MAIN HEADING: CALIBRI 48
6. Deductions
In respect of the present section 80C deductions, the proposals
in the Code are:
• Deduction to approved fund (approved provident
fund/approved superannuation fund/approved gratuity
fund/approved pension fund) to the account of
individual/spouse/children deductible to the extent of Rs.
1,00,000.
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MAIN HEADING: CALIBRI 48
• Life Insurance Premium, Health Insurance and fees for
education of children – deduction for all these together not to
exceeding Rs. 50,000.
• Thus, total deductions proposed under the Code is Rs. 1,50,000
for individuals.
• For HUFs only deduction upto Rs. 50,000 is available
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MAIN HEADING: CALIBRI 48
• No deduction is allowable for re-payment of principal of
housing loan or investment in NSC/ELSS under the Code as
was allowed under the Income Tax Act.
• Only long term savings schemes such as the public provident
fund, new pension scheme, recognised provident funds
presently qualify for the tax deduction of Rs. 1 lakh under
what is now called Section 80 C of the Income Tax Act and are
exempt from tax at all stages.
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7. Non-Profit Organisations (NPO)
• As per paragraph C of the First Schedule to the Code, the
taxability of NPO shall be 15%.
• The tax liability shall be calculated on the aggregate of the
following:
o Amount of surplus generated from the permitted welfare
activities i.e. ‘gross receipts’ as reduced by ‘outgoings’.
o Amount of capital gains arising on transfer of an
investment asset, being a financial asset.
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• Accumulation of income:
There is no provision for flexibility to spend income in the
subsequent year in line of option under explanation (2) to
section 11(1) of Income Tax Act 1961 or to accumulate any
portion of the income or even to accumulate income for the
purpose of specific long term projects [on the line of section
11(2) of Income Tax Act] such as construction of building for
setting up of hospitals, educational institutions, other
required infrastructural facilities like setting up Machineries
or equipments for laboratories or Medical Institution or
setting up a Library or Research Centre etc.
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Under the Code, every receipt is required to be spent in the
same year with the only exception of corpus donations.
• Higher Income Tax @ 30% on Net Worth in certain
situations:
As per section 94(1) of the Code, a NPO shall be liable to
income-tax @ 30% in respect of its net-worth if-
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o It converts into any form of organization which does not
qualify as a non profit organization;
o It merges with any form of organization which does not
qualify as a non-profit organization.
o It fails to transfer, upon its dissolution, all its assets to any
other NPO.
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WEALTH TAX
• Presently, under the 1957 Act, wealth tax is levied on the
excess of net wealth over Rs. 30, 00,000. This threshold is
proposed to be increased in the Code to Rs.1 crore.
• The liability to pay wealth tax under the 1957 Act is on
individuals, HUFs and companies. Under the Code, every
person other than a non-profit organization is liable to wealth
tax.
• The following items which do not attract wealth tax at present
shall attract wealth tax under the Code:
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S.No.
Particulars
1
2
Watch having value exceeding Rs. 50,000.
Deposits of individuals and HUFs in banks located outside
India.
Such deposits not recorded in books of account in case of
other persons.
Helicopter (not used in business of running on hire or held
as stock-in-trade),
Equity or preference shares held by a resident in a
controlled foreign company.
3
4
5
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6
7
Interest in a foreign trust or other body located outside
India other than a foreign company.
Under the Income Tax Act, cash in hand in excess of Rs.
50,000 is includible in net wealth. This limit is proposed to
be increased to Rs. 2,00,000.
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