Direct Taxes Code Bill, 2010 v.1

8/2/2019 Direct Taxes Code Bill, 2010 v.1

http://slidepdf.com/reader/full/direct-taxes-code-bill-2010-v1 1/40

Direct Taxes Code Bill, 2010 (“DTC”)

Personal TaxSubmitted by:-

Rajiv Ranjan 10PT1-075

Rakesh Bhat 10PT1-076



CONTENTS

Philosophy and Strategy of DTC

Personal Tax – Highlights

Rates of Tax

Scope of Total Income

Income From Employment

Income from House Property

Tax Incentives & Retirement Benefits

Deduction of Tax at Source

Wealth Tax

2Direct Tax Code, 2010



PHILOSOPHY & STRATEGY OF DTC




Philosophy

Use of simple language to ensure clarity.

Reduction in scope for litigation by avoiding ambiguity in

provisions.

Use of flexible structure to accommodate changes in thegrowing economy without resorting to frequent amendments.

Form based law - Incorporate a design which can be logically

reproduced in a Form.

Consolidate and rearrange various provisions to make them

consistent with the general scheme of the Act.

PHILOSOPHY & STRATEGY




Strategy

Expand tax base by adopting a comprehensive definition of

income by including all accruals and receipts of revenue and

capital nature unless otherwise specified.

Remove tax exemptions to achieve equity, reduce compliancecost, lower administrative burden, discourage corruption.

Liberalize tax rates -expected to yield existing level of revenues

with the revised comprehensive tax base.

Provide limited exemptions.

Provide exceptions, essentially in the nature of deferrals, with a

view to mitigating the problem of liquidity.

PHILOSOPHY & STRATEGY




PERSONAL TAX - Highlights Rationalisation of tax rates by removal of surcharge and shift of slabs

Due Date of filing of tax returns

30 June – Non business non corporate tax payers

31 August – All other tax payers

No distinction between Capital Gains basis long term and short term

Removal of many benefits currently exempt / taxed at lower rates - House

Rent Allowance, LTC, Retirement benefits etc.

“Exempt Exempt Taxable (EET)” to guide the philosophy of taxation of all

savings

Overall limit of savings based deductions/tax incentives increased to Rs. 3

Lakhs.




RATES OF TAX




RATES OF TAX

Income Slab (Rs.) ExistingRates

ProposedRates

Upto Rs.1,80,000* Nil Nil

1,80,000 to 5,00,000 10%

10%

5,00,000 to 8,00,000 20%

Above Rs 8,00,000 30%

10,00,000 to25,00,000

30% 20%

Above Rs. 25,00,000 30% 30%

Income(Rs.)

Currenttax

(Rs.)

Proposedtax

(Rs.)

Savings(Rs.)

Savings(%)

1,50,000 Nil Nil - -

3,00,000 14,420 14,000 420 3

5,00,000 55,620 34,000 21,620 39

7,50,000 1,32,870 59,000 73,870 56

10,00,000 2,10,120 84,000 1,26,120 60

20,00,000 5,19,120 2,84,000 2,35,120 45

TAX RATES TAX SAVINGS ( without considering the effect of HRA, LTA etc)

*Higher limits for working women and senior citizens




RATES OF TAX - Observations

No change in lowest slab (Rs.180,000)Upward shift of slabs intended to neutralise

impact of removal of many of the current

exemptions and benefits

Individuals on “borderline”, currently not

paying taxes, may become tax payers due toremoval of exemptions




SCOPE OF TOTAL INCOME




SCOPE OF TOTAL INCOME

No change in Scope of total income but no“NOR”:

In India Outside India

Income accrued/ deemed to

accrue

Incomereceived

Income accrued/ deemed to

accrue

Incomereceived

Resident * *

Non-Resident

*Subject to exception in case of “new” residents (see next slide)



INCOME FROM EMPLOYMENT





Particulars Existing

provision

Proposed provision Impact

►Definition of‘employer’

►Notspecified.

►Employer defined tomean an entity whichcontrols and directsthe individual underexpress or impliedemployment contractand is obligated topay compensation tohim.

►Conceptofeconomicemployerrecognizedin statute.




Particulars Existingprovision Proposedprovision Impact

►Meaning of‘employee’

►Notspecified.

►With referenceto the employee,the term ‘person’,

‘individual’,

‘employee’ and

‘assesses’ is

used in differentsections, andsometimesdifferently withinthe samesection.

►Inconsistencyin terms used




Particulars Existing provision Proposedprovision

Impact

►Commutedpension &gratuity

►Fully exempt forGovernmentemployees. Partiallyexempt for other

employees.

►Taxable buttax may bedeferredprovided

amount isdeposited in a‘Retirement

Benefit Account’

(RBA).

►Withdrawals

from RBA will betaxed.

►Parity oftreatmentbetweenGovernment

and non-Governmentemployees.

►Conformsto EETprinciple.





Impact

►VRScompensation

►Conditionallyexempt up to Rs. 5lakh.

►Taxable ondeferred basis,as perguidelines to be

prescribed,providedamount isdeposited inRBA.

►Withdrawals

from RBA will betaxed.

►Conformsto EETprinciple.





provision

Proposed

provision

Impact

►Leaveencashment

►Taxable ifreceived whilein employment(Relief of taxavailable). Ifreceived onretirement orotherwise, fullyexempt forGovernmentemployees andpartial exemptfor private

employees.

►Taxable whetherreceived duringemployment or onretirement orotherwise, for allemployees.

►Parity oftreatmentbetweenGovernmentand non-Governmentemployee.

►No relief ordeferment oftax.

►RetirementBenefitsAccount (RBA)

►None ►Interest accrual inRBA not exempted.





Impact

►Transportallowance

►Exempt up to 800p.m.

►Deductible up tocertain limits (Rs3200 to beprescribed).

►To beanalyzedonce limitsare

prescribed.

►HRA ►Exempt (subject tocertain limits).

►Prima facietaxable.

►Willincreasetax base.

.



INCOME FROM EMPLOYMENTParticulars Existing provision Proposed provision Impact

Specialallowances u/s10(14)

Exemption forPrescribed allowancesu/s 10(14) :

Rule 2BB(1) such as

To meet expensesaway from normal placeof duty ( also called PerDiems)

Rule 2BB(2) such as

►To meet personalexpenses at place ofemployment orresidence

►Personal allowancefor performing duties ofspecial nature, relatedto place of posting orresidence

►Deductible as prescribedto the extent actuallyincurred. Impact will beclear once rules are

prescribed.

►Only transport allowancedeductible to the extentprescribed

►Taxable

►Will increasetaxable salary

►Allowanceslikecompensatoryallowance,childreneducationallowance,etc., will nowbe fullytaxable.





provision

Proposed

provision

Impact

►Accommodation ►Valued asper Rules.

►Preferentialtreatment forGovernment

employees.

►ValuationRules to beprescribed.Expected tocover both

companyleased andHRA.

►Parity oftreatmentbetweenGovernment andnon-Government

employee.Impact can beascertained onceRules areprescribed. HRAstands withdrawnwhile

accommodationcontinues.




Particulars Existingprovision

Proposedprovision

Impact

►LTC ►Exempt(subject tolimits).

►Taxable. ►Will increasetaxable salary.

►Motor car; domesticservant,gas/electricity/water;educational facilities;transport facility

►Valued asper Rules.

►ValuationRules to beprescribed.

►Impact can beascertained onceRules areprescribed.





provision

Proposed

provision

Impact

►Medicalfacilities andreimbursements

►Medical treatmentin specifiedhospitals nottaxable.

►Payment of

medical insurancepremium nottaxable.

►Reimbursementon medicaltreatment nottaxable up to Rs.15,000.

►Medical treatmentabroad not taxablesubject to certainconditions.

►Taxable.

►Taxable.

►Taxable.

►Taxable.

►Increase intaxablesalary asEmployerfunded

medicalbenefitsbecometaxable.

I CO O LOY




Particulars Existingprovision

Proposedprovision

Impact

►Tax on non-monetaryperquisites

►Tax on nonmonetaryperquisitesnot subject togrossing upunder section10(10CC).

►Omitted. ►Higher taxoutgo.

►Stockoptions/sweatequity

►Taxable onallotment ortransfer ofshares as perprescribed

valuationrules and thenon sale ascapital gain.

►Taxable onallotment ortransfer ofshares asper valuation

rules to beprescribedand then onsale ascapital gain.

►No changein provisions.



INCOME FROM HOUSE PROPERTY





Particulars ExistingProvision

ProposedProvision

Impact

►Incomefrombusiness ofletting

►Taxableasbusinessincome.

►Taxable ashouse propertyincome (excepthotel, conventioncentre or coldstorage).

►Letting out ofcommercialcomplexes,theatres, etc. maybe taxed onpresumptive basis.

►Commercialletting will betaxable as houseproperty incomeeven though in the

nature of business.

►Fixed deductionsas against actualexpenses anddepreciation.





Provision

Proposed

Provision

Impact

►Tax base ►Annualvalue is thebasis fortaxation.

►Rentrealized andfair marketvalue formthe basis fordeterminingannual

value.

►Gross rent isthe basis fortaxation.Contractualrent and

presumptiverent* form thebasis fordetermininggross rent.

*6% of (a)ratable value,

or (b) cost ofconstruction oracquisition, ifno ratablevalue is fixed.

►New conceptof presumptiverentintroduced.

►May result ininconsistencywhere ratablevalue is notfixed. This maylead to fixationof rent which is

higher thanstandard rentin case theratable value isnot fixed.





ProposedProvision

Impact

Definition ofhousepropertyincomeexpanded

Anybuildings orlandsappurtenantthereto.

Also includesbuilding alongwithmachinery,plant, furnitureor any other

facility, ifletting of bothis inseparable.

Income, hitherto,taxed as income fromother sources, shallnow be taxed ashouse propertyincome.

Fixed deductions willbe available asagainst actualexpenses.

Propertyacquiredduring theyear

Annual valueis consideredfor theproportionateperiod.

No provision toapportionpresumptiverent.

Tax may be payablein respect of entireyear even if propertyis owned for a part ofthe year.




Particulars ExistingProvision ProposedProvision Impact

►Unrealisedrent

►Deductiblewhilecomputingannual value.

►No deductionprovided.

►Tax may bepayable onunrealised rent.

►Vacancyallowance

►Income notincluded forperiodproperty isvacant for

whole or partof the year.

►Thoughcontractual rentfactors in thevacancy,presumptive rent

does not do so.

►Tax may bepayable eventhough noincome isearned.





ProposedProvision

Impact

►Standarddeduction

►30% ofGross AnnualValue

►20% of Gross Rent ►Will increasetaxable income.

►Deductionfor tax onservices

► No specificprovision

► Specific provisionincluded.

► Tax on serviceswill bedeductible.





ProposedProvision

Impact

►Interest onborrowedcapital

► Allowed uptoRs. 150,000for selfoccupiedproperty.

► Allowedwithout limitfor let-outproperties.

► No deductionavailable for selfoccupied property.

► Allowed withoutlimit for let-outproperty.

►Provisiondiscriminatory infavor of multiplehome owners.

►May result insham let-outdeals.

►May discourageinvestment inproperty by

lower and middleincometaxpayers.





ProposedProvision

Impact

►Deductionfor interestpaid on loanduring the

pre-constructionor pre-acquisitionperiod

► Allowable in5installments.

► Apparently notallowed.

► Such interestmay be sunkcost.




TAX INCENTIVES


TAX INCENTIVES



TAX INCENTIVES

Savings Based Deductions All savings instruments transitioned to EET basis

Overall limit of Rs.300,000 per annum paid to any “permitted savingsintermediaries”

Approved provident fund

Approved superannuation fund Life insurance

New Pension System (NPS)

Roll over or purchase of annuity plan will be tax free

Employer contributions to PF, SAF to be included in the limit




TAX INCENTIVES- Other Deductions Tuition fees for children

For maximum of two children

Educational institution should be situated within India

Covered under the overall limit of Rs 300,000 per annum for savings instruments

Interest on education loan

Health insurance premium, treatment of prescribed diseases, maintenance of a disableddependent

Deduction in respect of donations subject to various limits

Deduction for rent paid by a self employed person




TAX INCENTIVESAvenue Existing

provision

Proposed

provision

Impact

►Lifeinsurance

►Premiumdeductible u/s80C upto Rs. 1lakh (if premiumdoes not exceed20% of sumassured).

►Sum received(includingbonus) isexempt if

premium doesnot exceed 20%of sum assured.

►Receipt ondeath is exempt.

►Premiumdeductible within theoverall tax incentivelimit of Rs. 3 lakh.

►Sum received(including bonus) isexempt if premiumdoes not exceed 5%of sum assured andsum is received onlyon completion of

contracted period oron death.

►Objectiveappears to limitEEE benefit topure life insurancepolicies.

►Existing lifeinsurance policieswhere premiumexceeds 5% of thesum assuredadversely

impacted.

TAX DEDUCTION AT SOURCE (‘TDS’)



TAX DEDUCTION AT SOURCE ( TDS )




TAX DEDUCTION AT SOURCE - Salaries Liability to deduct tax at source is on the employer

Residents – at average rate of tax

Non Residents – flat rate of 35% as per Fourth Schedule as applicable onresiduary income

Requirement to deduct appears on payment or credit. Amount payabledefined to include “by credit to any account, whether called SuspenseAccount or by any other name”

No provisions to address dual employment / successive employment /split salary situations

Loss from house property or any other income of the employee, if any,cannot be factored into the computation of tax to be deducted

Lack of clarity on whether or not employer can factor in foreign tax creditsto reduce tax to be deducted at source




WEALTH TAX




Threshold limit increased from Rs 30 lakhs to Rs 50 Lakhs

Rate of tax reduced from 1% to 0.25%

No special exemptions for returning non-resident Indians (earlier provisions

exempted the money and assets brought into India for a period of 7 years after the

return of the individual into India)

Private discretionary trusts covered

Valuation Rules to be prescribed

WEALTH TAX - Highlights




Thank You

Documents

Direct Taxes Code Bill, 2010 v.1