COMPARISON OF DTC WITH INCOME TAX ACT FOR BUSINESS

INCOME

Section 30:DTC-2013 AMMENDMENT :income from business

• (1) The income from any business carried on by the assesse at any time during a financial year shall be computed under the head “Income from business

IT ACT-1961:—Profits and gains of business or profession

• As per section 29 the income referred to in section 28 shall be computed in accordance with the provisions contained in sections 30 to [43D]. The following income shall be chargeable to income-tax under the head “Profits and gains of business or profession”,—

• (i) the profits and gains of any business or profession which was carried on by the assesse at any time during the previous year

• (ii) any compensation or other payment due to

Section 30:

DTC-2013 AMMENDMENT : income from business• (2) The income of distinct and separate

business referred to in section 31 shall be computed separately for the purposes of subsection (1)

IT ACT-1961:—Profits and gains of business or profession

• (iii) income derived by a trade, professional or similar45 association from specific services45 performed for its members.

• (iv) the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession.

• (v)any interest, salary, bonus, commission or remuneration, by whatever name called, due to, or received by, a partner of a firm.

Section 30:

DTC-2013 AMMENDMENT : income from business• (3) Any income from a business after

its discontinuance shall be deemed to be the income of the recipient in the year of receipt and shall, accordingly, be computed under the head “Income from business”

IT ACT-1961:—Profits and gains of business or profession

• (vi) any sum received under a Keyman insurance policy including the sum allocated by way of bonus on such policy

• (vii) any sum, whether received or receivable, in cash or kind, on account of any capital asset (other than land or goodwill or financial instrument) being demolished, destroyed, discarded or transferred, if the whole of the expenditure on such capital asset has been allowed as a deduction under section 35AD.]

Section 31:

DTC-2013 AMMENDMENT :31:business when treated distinct and separate• (1) A business shall be distinct and

separate from another business if there is no interlacing or interdependence or unity embracing the two businesses. • (2) For the purposes of subsection (1),

a business shall be distinct and separate from another business, if• (a) it is a business in respect of which

profits are determined under subsection (2) of section 32; or

IT ACT: business when treated distinct and separate

Section 28 Explanation 2.—Where speculative transactions carried on by an assessee are of such a nature as to constitute a business, the business (hereinafter referred to as “speculation business” ) shall be deemed to be distinct and separate from any other business.

Section 31:

31:business when treated distinct and separate• (b) it is a business eligible for

deduction in accordance with the provisions of clauses (l),(m), (n), (o) or (p) of subsection (2) of section 324• (3) A speculative business shall be

deemed to be distinct and separate from any other business including any other speculative business.

IT ACT: business when treated distinct and separate

Section 32:DTC-2013 AMMENDMENT :computation of income from business

• The income computed under the head “Income from business” shall be the profits from the business.

• The profits from the business of the nature specified in column of the Table given below shall be computed in accordance with the provisions contained in the Schedule specified in the corresponding entry in column of the said Table.

IT ACT-1961: Computation of income from business

• Different incomes are computed under different sections in it act 1961.

• Computation of profits and gains from the business of operating qualifying ships.

• 115VA. Notwithstanding anything to the contrary contained in sections 28 to 43C, in the case of a company, the income from the business of operating qualifying ships, may, at its option, be computed in accordance with the provisions of this Chapter and such income shall be deemed to be the profits and gains of such business chargeable to tax under the head "Profits and gains of business or profession" .

Si no Nature of business schedule

1 Business of Insurance Sixth schedule

2 Business of operating a qualifying ship Seventh schedule

3 Business of mineral oil or natural gas Eighth schedule

4 Business specified in Paragraph 1 of the Ninth Schedule

Ninth schedule

5 Business specified in Paragraph 1 of the Tenth Schedule

Tenth schedule

6 Business listed in column (2) of the Table in theEleventh

Eleventh schedule

Section 32:DTC-2013 AMMENDMENT :

• (3)The profits from any business not referred to in subsection (2) shall be the gross earnings from the business as reduced by the amount of business expenditure incurred by the assesse.

• (4) The Central Government may, if it considers necessary or expedient so to do, by notification direct that the provisions of the Eighth Schedule, Ninth Schedule, or Tenth Schedule, as the case may be, shall not apply from such date as may be specified therein, to the following, namely:

• (i) any class of undertakings or enterprises; or

• (ii) the business of the nature specified at Sl. Nos. 3, 4 or 5 of TABLE given in subsection (2) respectively.

IT ACT-1961: Computation of income from business

• Profits of life insurance business to be computed separately.

• 1. In the case of a person who carries on or at any time in the previous year carried on life insurance business, the profits and gains of such person from that business shall be computed separately from his profits and gains from any other business

• Profits and gains from the business of trading in alcoholic liquor, forest produce, scrap, etc.

• 206C. 29[30(1) Every person, being a seller shall, at the time of debiting of the amount payable by the buyer to the account of the buyer or at the time of receipt of such amount31 from the said buyer in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier.

Determination of Income from Business or Profession

Income Tax Act 1961IT Act Section 28

• The profits and gains of any business or profession which was carried on by the assesse at any time during the previous year• Cash assistance received or

receivable by any person against exports under any scheme of the Government of India

Direct Tax Code 2013Direct Tax Code Section 33-34

• The profits and gains of any business or profession which was carried on by the assesse at any time during the previous year• Cash assistance received or

receivable by any person against exports under any scheme of the Government of India

• The amount of cash assistance, subsidy or grant (by whatever name called), received from any person or the Government for, or in connection with, the business other than to meet any portion of the cost of any business capital asset;

• The value of any benefit or perquisite, whether convertible into money or not, accrued or received from, or in connection with, the business

• Cash assistance received or receivable by any person against exports under any scheme of the Government of India

• The value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession

• Any consideration on sale of a licence, not being a business capital asset, obtained in connection with the business;

• The amount of remuneration (including salary, bonus and commission) or any interest accrued to, or received by, a participant of an unincorporated body from such body;

• Any sum, whether received or receivable, in cash or kind, under an agreement for—

(a) not carrying out any activity in relation to any business; or(b) not sharing any know-how, patent, copyright, trade-mark, licence, franchise or any other business or commercial right of similar nature or information or technique likely to assist in the manufacture or processing of goods or provision for services

• Any interest, salary, bonus, commission or remuneration, by whatever name called, due to, or received by, a partner of a firm from such firm

SECTION 35- DETERMINATION OF OPERATING EXPENDITURE DTC-2013 AMMENDMENT

Clause 35 of the code lists operating expenditures allowed as business deductions. Further clause 35(2)(xliv) allows deduction of any other operating expenditure not covered in the list.

1) DTC categorizes business expenditure under three heads• (i) operating expenditure• (ii) finance charges• (iii) capital allowance.

INCOME TAX ACT-1961

Clause 35 in DTC is spread over section 30, 31, 36, 37, 40, 43 etc. in the Income-tax Act. General deduction of any business expenditure is provided under section 37.The provision in the Income Tax Act, 1961 are as follows:GENERAL:1) Any expenditure (not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession".

DTC-2013 AMMENDMENT

2) Clause 35(2) of the Code provide that the operating expenditure will include :

• rent paid for any premises if it is occupied and used by the person;

• current repairs to any building if it is occupied and used by the person;

• land revenue, local rates or municipal taxes in respect of premises occupied and used by the person;

• current repairs of machinery, plant or furniture used by the person;

IT ACT-1961

2) The clause in the existing Act is as under: In respect of rent, rates, taxes, repairs and insurance for premises, used for the purposes of the business or profession, the following deductions shall be allowed— (a) where the premises are occupied by the assessee—• as a tenant, the rent paid for such premises ; and

further if he has undertaken to bear the cost of repairs to the premises, the amount paid on account of such repairs ;

• otherwise than as a tenant, the amount paid by him on account of current repairs to the premises ;

(b) any sums paid on account of land revenue, local rates or municipal taxes ;(c) the amount of any premium paid in respect of insurance against risk of damage or destruction of the premises.

DTC- 2013 AMMENDMENT

3) AMOUNT OF CONTRIBUTION:

As per Clause 35(2)(xxix) of the Code, deduction for an amount of contribution by the person, being an employer, to an approved fund subject to such limits and conditions, as may be prescribed.

Further as per Clause 35(2)(xxx) of the Code, contribution to any fund, to the extent the amount has been received from his employees as their contribution to the fund

IT ACT-1961

In respect of repairs and insurance of machinery, plant or furniture used for the purposes of the business or profession, the following deductions shall be allowed—

• the amount paid on account of current repairs thereto

3) AMOUNT OF CONTRIBUTION:

The provision as per the existing Income Tax Act, 1961 is as follows:

• any sum paid by the assesse as an employer by way of contribution towards a recognised provident fund or an approved superannuation fund, subject to such limits as may be prescribed.

• any sum paid by the assesse as an employer by way of contribution towards an approved gratuity fund created by him for the exclusive benefit of his employees under an irrevocable trust;

DTC-2013 AMMENDMENT

4) DEDUCTION FOR HEAD OFFICE EXPENSE

Clause 35(2) (xxxi) of the Code provides for deduction of any head office expenditure by a non-resident, as is attributable to his business in India, not exceeding an amount equal to one-half per cent (1.5%) of the total sales, turnover or gross receipts of business in India.

5) TAX

Clause 35(xxxv) of the Code allows as operating expenditure- any tax (not being a tax under this Code), duty, cess, royalty or fee, by whatever name called, under any law for the time being in force, if the amount is actually paid.

IT ACT-1961

4) DEDUCTION FOR HEAD OFFICE EXPENSE

No allowance shall be made, in computing the income chargeable under the head "Profits and gains of business or profession", in respect of so much of the expenditure in the nature of head office expenditure as is in excess of the amount computed as hereunder, namely:—

(a) an amount equal to 5% of the adjusted total income; or

(c) the amount of so much of the expenditure in the nature of head office expenditure incurred by the assessee as is attributable to the business or profession of the assessee in India, whichever is the least .

5) TAX

Certain deductions to be only on actual payment.

DTC-2013 AMMENDMENT

6) LOSS OF INVENTORY OR MONEY

Clause 35(3)(b) allows deduction of loss of inventory or money on account of theft, robbery, fraud or embezzlement, occurring in the course of the business, if the inventory or the money is written off in the books of account.

7) AMOUNT CREDITED FOR PROVISION FOR BAD AND DOUBTFUL DEBTS

Clause 35(3) (c) of the Code allows a deduction of any amount credited to the provision for bad and doubtful debts account, not exceeding 1% of the aggregate average advances computed in the prescribed manner if,—

• the person is a financial institution, or a non-banking finance company as may be notified;

• the amount is charged to the profit and loss account for the financial year in accordance with the prudential norms of the Reserve Bank of India in this regard; and

• the amount of trade debt or part thereof written off as irrecoverable in the books of the person is debited to the provision for bad and doubtful debts account.

IT ACT-1961

6) LOSS OF INVENTORY OR MONEY

This provision does not exist in the Income Tax Act, 1961.

7) AMOUNT CREDITED FOR PROVISION FOR BAD AND DOUBTFUL DEBTS

Allows deduction in respect of any provision for bad and doubtful debts made by—

• a scheduled bank or a non-scheduled bank or a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank], an amount not exceeding seven and one-half per cent] of the total income (computed before making any deduction under this clause and Chapter VIA) and an amount not exceeding ten per cent of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner.

DTC-2013 AMMENDMENT

8) FINANCE CHARGES

Clause 35(4)(c) of the Code provide that the clause provides that operating expenditure shall not include finance charges.

9) VALUE OF INVENTORY

Clause 35(3)(a) provides for deduction of the value of inventory of the business, as at the beginning of the financial year.

IT ACT-1961

8) FINANCE CHARGES

This is not provided in the existing Act.

9) VALUE OF INVENTORY

The provision does not exist in the Income Tax Act, 1961

SECTION 36- DETERMINATION OF FINANCE CHARGES

DTC

The amount of finance charges referred to in clause (b) of sub-section (1) of section 36 shall be—(a) the amount of interest paid on any capital

borrowed or debt incurred

(b) the amount of interest paid to trade creditors

(c) the amount of interest paid to any participant

(d) the amount of any incidental financial charges

ITA

NO CHANGES

DTC

ITEMS ALLOWED FOR DEDUCTION

The amount of interest on any capital borrowed or debt incurred, which is payable to any financial institution, shall be allowed as a deduction

ITA

Provisions granting deduction at 10% of the aggregate average advances made by rural branches of specified banks

DETERMINATION OF CAPITAL ALLOWANCES

DTC – sec 37Amount would be the aggregate amount of :

a) Depreciation of business capital asset

b) Terminal allowance

c) Scientific research allowance

d) Initial depreciation allowance

ITA

No separate section

DEPRECIATION AND INITIAL DEPRECIATIONDTC

Depreciation – section 38Initial depreciation – section 39

• Amount of depreciation in case of a business capital asset would be:

a)Percentage of the adjusted book valueb)NIL in case of any other business where capital asset does not form a part of block

asset

ITASection 32

• Amount of depreciation in case of a business capital asset would be:

a) Percentage of actual cost in case of power generating assets

b) WDV in case of assets forming a block

DTC ITA

• Amount deducted shall be restricted to 50%

• Whole actual cost of asset is not allowed as deduction

• No deduction shall be allowed when

• Initial depreciation should be 20% on new plant and machinery

• Amount deducted shall be 75% of the amount calculated as on WDV

• Aggregate reduction should not be exceeded

• No deduction shall be allowed when

• Governed by the exception of 180 days

SECTION 40- Deduction for Terminal AllowanceDIRECT TAX CODE-2013

1. A person shall be allowed a terminal allowance in respect of a block of assets, if

(a) the block of assets has ceased to exist by reason of being demolished, destroyed, discarded or transferred during the financial year;

(b) The percentage specified in the thirteenth schedule for computing depreciation in respect of the block of assets is zero.

INCOME TAX ACT-19611. Section 32(1)(iii) of the Income-tax Act,

1961, provides for deduction in the case of a

(i) building, machinery, plant or furniture which is sold, discarded, demolished or destroyed in the previous year (other than the previous year in which it is first brought into use )the amount by which the money is payable in respect of such building, machinery, plant or furniture, together with the amount of scrap value, if any, falls short of the written-down value thereof.

(ii) This deduction is to be allowed only if such deficiency is actually written-off in the books of the assesse.

SECTION 40DIRECT TAX CODE-2013

2. The terminal allowance referred to in subsection(1) shall be computed in accordance with the formula

A+B-C WhereA= the written down value of the block of assets at the beginning of the financial yearB= the actual cost of any asset falling within that block, acquired during the financial year; and C= the amount accrued or received in respect of the assets which are demolished, destroyed, discarded or transferred during the financial year together with the value of the carcass or the scrap, if any.

INCOME TAX ACT 1961

No such formula is specified in the income tax act.

SECTION 41- Deduction for Scientific Research and Development ALLOWANCE

DIRECT CODE TAX-20131. A company shall be allowed a deduction equal

to one 150% of the expenditure (not being expenditure in the nature of cost of any land or building) incurred on—

(a) creating and maintaining an in- house facility for scientific research and development; and

(b) carrying out scientific research and development in the in-house facility.

PROVIDED THAT:(c) the company is engaged in the business of

biotechnology or in business of manufacture (d) the company creates and maintains an in-

house facility for carrying out scientific research and development

INCOME TAX ACT-1961

1. Deductions shall be allowed of an amount equal to one and one-fourth times of any sum paid to a scientific research association which has as its object the undertaking of scientific research or to a university, college or other institution to be used for scientific research.

PROVIDED THAT:(a) is registered in India, has as its object the

scientific research and development.(b) University, college or other institution for

the purpose of this clause (a) is for the time being approved, in accordance with the guidelines, in manner and subject to such conditions may be presented.

SECTION 41DIRECT TAX CODE-2013

(c) the research facility is approved by the Central Government on the basis of the recommendation of such authority as may be notified;

(d) the company enters into an agreement with such authority,-

(i) for cooperation in the research and development facility; and

(ii) for audit of the accounts maintained for such facility.

2. The approval granted to a predecessor shall be deemed to have been granted to the successor if the research facility is transferred to the successor as a result of a business re-organization.

INCOME TAX ACT-1961

(c) such university, college or other institution is specified as such, by notification28 in the Official Gazette, by the Central Government.

(d) In respect of expenditure on scientific research, the following deductions shall be allowed—

(i) any expenditure laid out or expended on scientific research related to the business.

(ii) On payment of any salary to an employee engaged in such scientific research or on the purchase of materials used in such scientific research.

2. The aggregate of the expenditure so laid out or expended within three years immediately preceding the commencement of the business.

SECTION 41DIRECT TAX CODE-2013

The deduction under this section shall not be allowed to a company in respect of the expenditure referred to in sub-section (1), if the expenditure is incurred in the course of its business in the nature of scientific research and development..

INCOME TAX 1961

be deemed to have been laid out or expended in the previous year in which the business is commenced

SEC (42)-Computation of Profit on transfer of a business capital Asset

DTC- 2013 AMMENDMENT1. The amount of profit, where a business capital asset,

which forms part of a block of assets specified in the Thirteenth Schedule, is transferred, discarded, destroyed or demolished shall be computed in accordance with the formula-

A-(B+C)

where- • A = the amount accrued or received in respect of such

asset, which is transferred, discarded, destroyed or demolished during the financial year together with the amount of scrap value, if any; the amount accrued

• B= the amount of written down value of such block of assets at the beginning of the financial year;

• C= the actual cost of any asset falling within that block of assets, acquired during the financial year;

INCOME TAX ACT-1961

1. Profits or Gains arising from the transfer of a capital asset is chargeable to tax in the year in which transfer take place under the head "Capital Gains".

The Capital Gains have been divided in two parts under Income Tax Act 1961.

Short term capital gain and Long term capital gain

SECTION 42DTC- 2013 AMMENDMENT

2. The profit referred to in sub-section (1) shall be treated as ‘nil’, if the net result of the computation there under is negative.

3. The amount of profit, where a business capital asset other than that referred to in sub-section (1) is transferred, discarded, destroyed or demolished, shall be computed in accordance with the formula-

A-B where- • A = amount accrued or received in respect of the

asset which is transferred, discarded, destroyed or demolished during the financial year together with the amount of scrap value, if any;

• B =the actual cost of the asset.

INCOME TAX ACT-1961(i) Short term capital gainsFind out full value of consideration Deduct the following

a. Expenditure incurred wholly and exclusively in connection with such transfer

b. Cost of acquisition c. Cost of improvement

Balance amount is short term capital gains.(ii) Long term capital gainsFind out full value of consideration Deduct the following

a. Expenditure incurred wholly and exclusively in connection with such transfer b. Indexed cost of acquisition c. Indexed cost of improvement

Balance amount is long term capital gain

Actual cost

DTC 2013 amended• No such provision in DTC act

2013

• No such provision in DTC act 2013

Income tax act 1961• The actual cost of an asset being a motor

vehicle is used otherwise than in a business the excess cost over twenty five thousand rupees shall be ignored

• Where an asset is used in business after it ceases to be used in scientific research, the actual cost of the asset will be the cost to the assessee reduced by the amount that is allowed

Written down value and adjusted value of assetDTC Act 2013• The written down value of the block of assets at

the close of the immediately preceding financial year shall be the adjusted value of the block of assets in the immediately preceding financial year as reduced by—

• (a) the amount of capital allowance, if any, allowed under section 37 during that year; and

• (b)any expenditure incurred for acquiring the asset to the extent allowed as a deductionin the financial year under any provision of this Code

Income Tax Act 1961• No such provision in Income tax Act 1961

Special provision relating to business reorganizationDTC Act 2013• Provision under DTC is in general related to business• A x B C• Where A =the amount of deduction allowable as if

the business reorganisation had not taken place; • B = the number of days comprised in the period

beginning with the first day of the financial year and ending on the day immediately preceding the date of business reorganisation;

• C = the total number of days in the financial year in which the business reorganisation has taken place

Income tax Act 1961• Provision for business reorganization under

Income tax relates to cooperative banks• A x B /C• where A = the amount of deduction allowable to

the predecessor co-operative bank if the business reorganisation had not taken place;

• B = the number of days comprised in the period beginning with the 1st day of the financial year and ending on the day immediately preceding the date of business reorganisation; and

• C = the total number of days in the financial year in which the business reorganisation has taken place.

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