Direct Taxes Code - Implications

The much awaited Direct Taxes Code Bill, introduced this week in Parliament, has set high expectations in the minds of taxpayers of the country — individuals and businesses alike.

Direct Tax Code Bill Review

Direct Tax Code Bill Review

Tax Rate Card - Direct Tax Code

Tax Rate Card - Direct Tax Code

Direct Tax Code

Direct Tax Code

Cabinet approves Direct Taxes Code Bill

The Union Cabinet approved the Direct Taxes Code (DTC) Bill, paving the way for lower tax rates and reduced exemptions for both individuals as well as corporates. The Bill is likely to be tabled in the current Monsoon Session of Parliament, and could lead to the introduction of the new tax regime from April next year. "The basic income-tax exemption limit is proposed to be raised to Rs2 lakh from the current Rs1.6 lakh and corporate tax rate for both domestic and foreign companies is proposed at 30%," Finance Minister Pranab Mukherjee said after a Cabinet meeting.

Potential tax code change may hit payees

According to media reports, the government is planning to significantly alter the slabs proposed in the original draft of the direct taxes code (DTC), which may cost taxpayers.

New Direct Taxes Code - not so friendly on investments

The revised discussion paper on the new direct tax code has a couple of provisions that would mean a fundamental change for those investing in stocks, equity mutual funds and other equity-based asset types.

Direct Taxes Code - Impact on FIIs

Foreign institutional investors (FIIs) play a significant role in the Indian equity market, both as long-term investors and as short-term traders. It is therefore not surprising that the Revised Discussion Paper on the Direct Taxes Code (DTC) dwells at length on the issues pertaining to the taxation of these investors.

Direct Taxes Code - who does it affect you ?

Direct Taxes Code (DTC) is proposed to replace the Income-Tax Act from April 1, 2011, with the objective of simplification of tax structure and align it with the economic environment.

DTC was presented to the public for debate in August 2009. After due deliberations and suggestions from stakeholders, a Revised Discussion Paper (RDP) was presented recently by the Government for public comments. The RDP has reconsidered many proposals in the DTC in line with the expectations of the public.

Direct Tax Code 2.0

Direct Tax Code 2.0

Revised DTC draft unveiled for public scrutiny

The Finance Ministry unveiled the second draft of the proposed Direct Taxes Code (DTC). The first draft tax code was released in August 2009 and received 1,600 comments. The first draft had proposed a uniform corporate tax rate of 25%. The revised discussion paper addresses 11 issues which includes the issue of wealth tax and general anti-avoidance rule (GAAR). The final draft is set to take into account issues such as minimum alternate tax (MAT), special economic zones (SEZ), transfer pricing, GAAR, IT exemption on savings and taxation of charitable organisations. Under the Direct Tax Code, the current distinction between short-term investment asset and long-term investment asset on the basis of the length of holding of the asset will be eliminated.

Direct Tax Code, Larsen and Tourbo, Bank of India

Direct Tax Code, Larsen and Tourbo, Bank of India

Direct Tax Code - Analysis - Negative for Markets

Direct Tax Code - Analysis - Negative for Markets

Direct Tax Code...Govt identifies 7 areas for examination

Finance Minister announced that the Government has identified seven critical areas on the Direct Taxes Code for further detailed examination. At an interactive session with representatives of trade and industry, Pranab Mukherjee said that the areas identified after interactions with all stakeholders are: the concept of Minimum Alternative Tax (MAT) based on gross assets; Capital Gains Taxation in the case of non-residents; The Income Tax Act and the Double Taxation Avoidance Agreement (DTAA); General Anti-Avoidance Rule (GAAR); Issues relating to effective management control and taxation of foreign companies in India; Taxation of charitable organizations; and Shift from EEE to EET taxation system. On the apprehensions expressed regarding the time schedule for implementation of the new Direct Taxes Code, the Finance Minister assured that next steps would be taken only after a comprehensive review of the draft by taking on board the suggestions received. "Every effort would be made to meet the aspirations and expectations of our taxpayers and our vibrant corporate sector," Mukherjee said.

Direct Taxes Code Explained

What are the changes made with reference to residential status by the proposed Direct Taxes Code, 2009?

The Act presently classifies individuals into resident and ordinarily resident, resident but not ordinarily resident and non-resident.

In the case of a resident but not ordinarily resident (RNOR), income accruing or arising or deemed to accrue or arise outside India or received or deemed to be received outside India is not taxable in India unless such income is from a business or profession set up and controlled in India.

The tax code proposes to do away with the classification resident but not ordinarily resident. This would mean that Indians working abroad would be classified as resident even if they fall under the category of resident but not ordinarily resident and, consequently, such income would be taxable in India.

How is income classified under the draft code?

Income is to be classified as income from ordinary sources being (A) income from employment, (B) income from house property, (C) income from business, (D) capital gains, (E) income from residuary sources and as income from special sources which in the case of a resident assessee would be income by way of (i) any lottery or crossword puzzle, (ii) race, including horse race or (iii) card game or any other game or gambling or betting.

What are the changes with regard to computation of capital gains?

The distinction between short-term and long-term capital gains is done away with and the income from transfer of an investment asset is to be computed under the head capital gains.

The term investment asset is defined to mean a capital asset not being a business asset.

A capital asset is defined to mean every property other than a business trading asset.

In computing capital gains the deductions are (a) the amount of expenditure incurred wholly and exclusively in connection with the transfer of the asset (b) the cost of acquisition of the asset and (c) the cost of improvement of the asset.

If the investment asset has been held for more than one year the deductions that are permitted are (a) the amount of expenditure incurred wholly and exclusively in connection with the transfer of the asset, (b) the indexed cost of acquisition of the asset, (c) the indexed cost of improvement of the asset and (d) the amount of relief for rollover of the asset.

The base year for the benefit of indexation is to be taken as the financial year 2000-01 and if an assessee has acquired an asset prior to April 1, 2000, the fair market value as on April 1, 2000, can be substituted as the cost of acquisition at the option of the assessee.

Deduction in respect of rollover of investment asset is computed for an individual or Hindu Undivided Family on the basis of the formula {A * (B+C+D)}/ E.

A is the amount of capital gains arising from the transfer of the original asset; B is the amount invested for purchase or in construction of the new asset within one year before beginning of the financial year in which the transfer of original investment asset is effected; C is the amount invested for purchase or in construction of the new asset during the financial year in which the transfer of original investment asset is effected.

D would be the amount deposited in an account in post office in accordance with the Capital Gains Deposit Scheme of the Centre in this behalf, by the end of the financial year in which the transfer of original investment asset is effected and E is the net consideration received as a result of the transfer of the original asset.

The deduction is permissible in respect of investments in certain new assets (such as land, residential house or investment in capital gains scheme) specified in the bill.

What are the deductions that are permissible to an individual under the code?

An individual can claim a deduction in respect of the following:

- Rs 3 lakh in respect of permitted savings, which would be taxed when withdrawn.

- Tuition fee paid for full-time education of two children in a university, school or educational institution situated in India

- Interest on loan taken for higher education of the individual or his relative for eight years

- Health insurance premium of up to Rs 15,000. In case of the insurance taken by an individual for a senior citizen, Rs 20,000 would be allowed as deduction.

This deduction is available in respect of premium paid for the individual, the spouse, any dependent child of the individual and any member of the Hindu Undivided Family.

- Expenses on medical treatment in respect of prescribed diseases and ailments of the individual, the spouse of such individual, the dependent children or dependent parents of the individual of up to Rs 40,000, and if the ailing person is a senior citizen, then the amount would be Rs 60,000.

- Expenses on medical treatment, nursing or training and rehabilitation of a disabled dependent suffering from specified disabilities of up to Rs 50,000 and in case of a person suffering from severe disability of up to Rs 1 lakh.

- Rs 50,000 as deduction to a person suffering from certain disabilities and if the disability is severe, Rs 1 lakh

How are loans treated?

An amount of loan or deposit borrowed or repaid otherwise than by an account payee cheque or account payee draft and exceeding Rs 20,000 including interest thereon at the time of repayment is to be treated as income in the hands of the recipient.

via BL