THE DIRECT TAXES CODE, 2010 Bill No. 110 of 2010 PRESENTED BY :- SUPRIT SHARAN ARPITA SINGH
A charge imposed by Government on the annual gains
• of a person
• corporation
• or other taxable unit
The annual gain is derived from
• work, business pursuits
• investments, property dealings, and
• other sources determined in accordance with the Internal Revenue Code or state law
THE DIRECT TAX CODE, 2010
• in Lok Sabha on 30-08-2010
• By Finance minister P. Mukherjee
When it is introduced?
• Financial year 2012-2013
• i.e. from 1st day of April, 2012
Enforced from
• to replace the existing Income Tax Act of 1961 in India.It’s aim
WHY DTC IS REQUIRED???
Rates of tax to be uniform
Tax deduction limit on savings to be
hiked to Rs 3 lakh
Security transaction tax to
be abolished
To scrap long, short-term capital gains distinction
Business losses can be carried forward
indefinitely
No tax deduction on interest payable on any Government security
Effective corporate tax rate at 30 %
Highest tax rate of 30% for individual of income over
Rs 25 lakh
An individual shall be resident in India in any financial year, if he is in India-
for a period, or periods,
amounting in all to one
hundred and eighty-two
days or more in that year; or
for a period, or periods,
amounting in all to-
i)sixty days or more in that year; and
ii) three hundred and
sixty-five days or more within the four years immediately
preceding that year.
a citizen of India and who leaves India in
that year as a member of the crew of an Indian ship; or
The previous provisions shall
not apply in respect of an
individual who is :-
the total income of any financial year of aperson, who is a resident, shall include allincome from whatever source derived which—
• accrues, or is deemed to accrue to him in India
• is received, or is deemed to be received, by him, or on his behalf in India during the year
In India
• accrues to him outside India
• is received by him, or on his behalf, outside India during the year.
Outside India
For Non- Resident
accrues, or is deemed to accrue, to him in India during the year; or
is received, or is deemed to be received, by him, or on his behalf, in India during the year.
Subject to the provisions of this Code, the total income of any
financial year of a person, who is a non-resident, shall include all
income from whatever source derived which—
CLASSIFICATION OF SOURCES OF INCOME
Income from Special sources
Income from Ordinary sources
TOTAL INCOME
Income from Special sources
Income from Special Sourcesinclude interest, dividends onwhich distribution tax has notbeen paid, capital gains, anyother investment income,royalty, fees for technicalservices, amongst others.
Income from Ordinary sources
Income from employment
Income from House
Property
Income from Business
Capital gainsIncome from
Residuary Sources
Income from employment
Gross salary, including the value of perquisites and profits in lieu of salary, to be taxed on due or receipt basis, whichever is earlier and to be reduced by permissible deductions
Permissible deductions to include professional tax, transport allowance, prescribed special allowance, compensation under voluntary retirement scheme, gratuity, commutation of pension, amongst others
Income from House Property
Income from house property to be the gross rent less specifieddeductions.
Gross rent to be higher of contractual rent or presumptive rentcalculated at 6% per annum of the rateable value fixed by thelocal authority / 6% of cost of construction or acquisition of theproperty (in the absence of rateable value).
Advance rent to be taxed in the financial year to which it relatesto.
Income from Business
All assets to be classified into business andinvestment assets, wherein business assets to befurther classified into business trading assets andbusiness capital assets.
Only income from transactions in business assets toform part of business income
Profit on sale of business capital assets, profit on saleof an undertaking under a slump sale, transfer of anyself generated business asset, etc. to be treated asbusiness income
Capital gains
Income from transactions in all investment assets to be taxed under the head “capital gains”.
Gains and losses to be included in the total income of the financial year in which the investment asset is transferred irrespective of the year of receipt of consideration, except in the case of compulsory acquisition of an asset.
Income from Residuary Sources
Residuary income to comprise any income which does notform part of any other head of income
The scope of gross residuary income widened to includeincome having incidental nexus with some other head ofincome
Any amount exceeding Rs. 20,000, taken or accepted orrepaid as loan or deposit otherwise than by account payeecheque or draft to be taxed as income from residuarysources.
TAX INCENTIVES
Investments through PFRDA approved agencies
Payment of tuition fees
Medical treatment
Health insurance
Donations
Interest on loan taken for higher education
Maintenance of a disabled dependant
Interest income on Government Bonds
Major Deductions applicable under the Tax Incentives for an
individual are:
The EET Model for Investments
Exempted when invested
Exempted till it is remained invested
Taxed when it is withdrawn
HIGHLIGHTS OF DTC
Single Code for direct taxes
Use of simple language
Flexibility
Providing stability
Reducing the scope for litigation
New Tax rates for individuals
Slab Income Between, Tax rate
1 0 - 1.60 Lakhs 0%
2 1.60 Lakhs to 10 Lakhs 10%
3 10 Lakhs to 25 Lakhs 20%
4 Above 25 Lakhs 30%
In the case of woman below the age of sixty
five years at any time during the
financial year:
Slab Income Between Tax rate
1 0 - 1.90 Lakhs 0%
2 1.90 Lakhs to 10 Lakhs 10%
3 10 Lakhs to 25 Lakhs 20%
4 Above 25 Lakhs 30%
In the case of senior citizens
Slab Income Between Tax rate
1 0 - 2.40 Lakhs 0%
2 2.40 Lakhs to 10 Lakhs 10%
3 10 Lakhs to 25 Lakhs 20%
4 Above 25 Lakhs 30%
New due dates for Tax Returns:
Sl. No Type Date First filing
(under DTC)
1 Non-Business / Non-
Corporate
30th June 30/06/2013
2 Others 31st August 31/08/2013
Terminology of Assessed
• terminology of assessed was meant for the person who is paying tax and/or
• who is liable for proceeding under the Act
Earlier
• Two more definitions
• a person, whom the amount is refundable, and/or,
• who voluntarily files tax return irrespective of tax liability
Now
Impact on Residential status
Earlier
Resident
Ordinary Resident
Not Ordinary Resident
Non-Resident
Non-Resident
Recent Tax Code v/s DTCSl. No. Before DTC After DTC
1 At present there are two legislation i.e. Income
Tax Act, 1961 and Wealth Tax Act, 1957.
Single code for Income Tax Act and Wealth Tax Act.
The code consists of 285 sections.
2 There are three kind of Residential status i.e
‘Resident’, ‘Non Resident’ and ‘Resident but
not Ordinarily Resident’.
Residential status of “Resident but not ordinarily
resident” has been done away with.
3 There are ‘previous year’ and ‘assessment
year’.
To eliminate confusion only ‘Financial Year’ will
prevail.
4 Date of filing of tax return 31st July for non-
business non-corporate assessee and 30th Sept
for others.
Date of filing of tax return preponed to 30th June
for non-business non-corporate assessee and 31st
Aug for others
5 The corporate tax rate of domestic company is
30% and for foreign company, it is 40%.
Business losses can be carry forward for 8 yrs.
Dividend distribution is at 15%.
The corporate tax rate of all companies reduced to
30%. Business losses can be carry forward for
unlimited period. Dividend distribution tax
remains at 15%.
6 Wealth tax rate is 1% above Rs.30 lacs.
Definition of wealth includes some specific
assets excluding investments in shares. It was
applicable to all assessee.
Wealth tax rate reduced to 0.25% above Rs.50
crore except for private discretionary trust, for
which no threshold limit will be available.
Definition of wealth has been expanded to include
all assets, including investments.
7 Self-occupied house property whose gross rent
is taken as NIL, used to get deduction of
interest on loan. Deduction for repair based on
annual value in case of rented house property
is 30%.
Self-occupied house property whose gross
rent is taken as NIL, will not get deduction of
interest on loan. Deduction for repair on
annual value in case of rented house property
is proposed to reduce to 20%.
8 As per section 80C certain investment/savings
upto Rs. 1 lac were deductible from taxable
income.
Exempt-Exempt-Taxation (EET) method of
taxation of savings/investment, will be applied
on new contribution after commencement of
the code. Limit for investment raised to
Rs.300000 p.a. However deduction on
investment in tax-saving mutual funds and
fixed deposits have been abolished.
9 Income from Salary includes all perquisites
such as house rent, leave travel assistance,
children education allowances, encashment of
unavailed earned leave on retirement, medical
reimbursement and free/concessional medical
treatment paid/provided etc is exempt up to a
certain limit.
All such exemption withdrawn.
Positives of DTC
Savings of up to '41,000 for those earning '10 lakh
Corporate tax rate lowered from 40% to 30%
Foreign companies to pay tax at the same rate as local companies
No tax on maturity amount of New Pension Scheme at the time of withdrawal
Negatives of DTC
Women will not get any additional tax benefits
SEZ developers face tax burden starting April 2012
Fund houses face 5% tax on distribution income for Ulips, equity-linked MFs
More non-profit firms will come under the tax net
As per the current laws, a NRI is liable to pay tax on global income if he is in India for a period more than
60 days in a financial year
How insurance gets impacted:
Under DTC, to be eligible for taxdeduction, a policy should give life coverof at least 20 times the annual premium
If this condition is not met, you will not getany tax deduction on the premium andeven the income from the policy will betaxable
Right now income received from insurancepolicies is free.
Impact on Pension Funds:
Under the DTC, most of current tax saving investment will not be eligible for deduction
An Annuity is an investment that gives out a regular income of the investor.
DTC has proposed to make annuity income exempt from taxation which makes them good tax saving instrument
The New Pension scheme is low cost pension fund which an investor can consider.
EFFECT ON TAX LIABILITY DUE TO DTC
SUPPOSE THE TAXABLE INCOME IS RS 3,00,000
FROM CURRENT TAX SLAB
TAX FOR 1ST RS 1,60,000 = NIL
TAX FOR NEXT1,40,000= RS 14,000 @ 10 %
TOTAL TAX LIABILITY (EXCLUDING EDUCATION CESS @ 3% ) = RS 14,000
NOW, AFTER DTC
TAXABLE INCOME = RS 3,00,000
TAX FOR 1ST RS1,60,000 = NIL
TAX FOR NEXT RS 1,40,000 = RS 14,000@ 10%
TOTAL TAX LIABILITY (EXCLUDING EDUCATION CESS @ 3%) = RS 14,000
TOTAL SAVING = RS ( 14,000 – 14,000)
= RS 0
SUPPOSE THE TAXABLE INCOME IS RS 8,30,000FROM CURRENT TAX SLABTAX FOR 1ST RS 1,60,000 = NILTAX FOR NEXT3,40,000= RS 34,000 @ 10 %TAX FOR NEXT 3,00,000 = RS 60,000 @ 20%TAX FOR NEXT 30,000 = RS 9000@ 30%
TOTAL TAX LIABILITY (EXCLUDING EDUCATION CESS @ 3% ) = RS(34000+ 60000+9000)
= RS 1,03,000
NOW, AFTER DTC
TAXABLE INCOME = RS 8,30,000
TAX FOR 1ST RS1,60,000 = NIL
TAX FOR NEXT RS 6,70,000 = RS 67000@ 10%
TOTAL TAX LIABILITY (EXCLUDING EDUCATION CESS @ 3%) = RS 67,000
TOTAL SAVING = RS ( 1,03,000 – 67,000)
= RS 36000
SUPPOSE THE TAXABLE INCOME IS RS 10,00,000FROM CURRENT TAX SLABTAX FOR 1ST RS 1,60,000 = NILTAX FOR NEXT3,40,000= RS 34,000 @ 10 %TAX FOR NEXT 3,00,000 = RS 60,000 @ 20%TAX FOR NEXT 2,00,000 = RS 60,000@ 30%
TOTAL TAX LIABILITY (EXCLUDING EDUCATION CESS @ 3% ) = RS(34000+ 60000+60000)
= RS 1,54,000
NOW, AFTER DTC
TAXABLE INCOME = RS 10,00,000
TAX FOR 1ST RS1,60,000 = NIL
TAX FOR NEXT RS 8,40,000 = RS 84,000@ 10%
TOTAL TAX LIABILITY (EXCLUDING EDUCATION CESS @ 3%) = RS 84,000
TOTAL SAVING = RS ( 1,54,000 – 84,000)
= RS 70,000
SUPPOSE THE TAXABLE INCOME IS RS 15,00,000FROM CURRENT TAX SLABTAX FOR 1ST RS 1,60,000 = NILTAX FOR NEXT RS 3,40,000= RS 34,000 @ 10 %TAX FOR NEXT RS 3,00,000 = RS 60,000 @ 20%TAX FOR NEXT RS 7,00,000 = RS 2,10,000@ 30%
TOTAL TAX LIABILITY (EXCLUDING EDUCATION CESS @ 3% ) = RS(34000+ 60000+210000)
= RS 3,04,000
NOW, AFTER DTCTAXABLE INCOME = RS 15,00,000TAX FOR 1ST RS1,60,000 = NILTAX FOR NEXT RS 8,40,000 = RS 84000@ 10%TAX FOR NEXT RS 5,00,000 = RS 1,00,000TOTAL TAX LIABILITY (EXCLUDING EDUCATION CESS
@ 3%) = RS (84000 + 1,00,000)= RS 1,84,000
TOTAL SAVING = RS ( 3,04,000 – ,184,000)= RS RS 1,20,000