25 25 Last Direct Tax Code

8/6/2019 25 25 Last Direct Tax Code

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Direct Tax Code


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INTRODUCTION

Income Tax Act (IT Act) came into legislationin 1961.

This Act has been criticized for beingeconomically inefficient, incompatible with

the current requirements and inequitable to alltax payers.

So, in August 2009, the Ministry of Financecame out with the draft of Direct Tax Code

(DTC) bill with the purpose of replacing theexisting IT Act and also invited the public fordiscussions and feedback on the draftproposal.


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It will be a key tax reform by the government aiming atwidening and deepening the tax net; and increasing taxrevenue. But the draft bill had received lot of criticismson certain amendments or changes in relation to theremoval of existing tax subsidies, and modifications in

the tax rate structure that it sought to introduce. So, in June 2010, the ministry again issued a new revised

direct tax code bill, incorporating all the criticisms, andpresented the draft to the Union Cabinet. As per the newsreports, on 31st August 2010, the draft bill has beenapproved by the Cabinet as well as the Parliament andthe new DTC will come into force from financial year2011-2012.


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NEED FOR NEW DIRECT TAX CODE

The rationale for introducing DTC is to increase theefficiency and equity of the tax system by eliminating the plethora of tax exemptions or subsidies that createdistortions. Its major policies include reduction in the tax

rates to bring more people and companies under the taxnet. India wants to modernize its direct tax laws, mainly itsincome tax act which is now nearly 50 years old. Thegovernment, wants a modern tax code in step with theneeds of an economy which is now the third largest in

Asia. The new tax code is expected to widen the tax base, end

unnecessary exemptions, moderate tax rates and add to thegovernment's funds.


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INCOME TAX SLAB

Income slab existing Rate ofIncome Tax

Income slab proposed by newrevised DTC

U p to Rs 160,000 nil Up to Rs 200,000

Rs 160,001 to Rs 300,000 10% Rs 200,001 to Rs 500,000

Rs 300,001 to Rs 500,000 20% Rs 500,001 to Rs 1,000,000

Above Rs 500,001 30% Above Rs 1,000,001

The basic tax exemption limit for an individual male and female has been raised

and brought at par from Rs 1,60,000 and Rs 1,90,000 to Rs 2,00,000 per annum.

Senior citizens, however, will now enjoy a tax exemption on income up to Rs

2,50,000 per annum instead of Rs 240,000 allowed now.


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Income slab existing Rate of

Income Tax

Income slab proposed by new

revised DTC

Up to Rs 190,000 nil Up to Rs 200,000

Rs 190,001 to Rs 300,000 10% Rs 200,001 to Rs 500,000

Rs 300,001 to Rs 500,000 20% Rs 500,001 to Rs 1,000,000

Above Rs 500,001 30% Above Rs 1,000,001

TAX SLABS, WOMEN


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Income slab existing Rate of

Income Tax

Income slab proposed by new

revised DTC

Up to Rs 240,000 nil Up to Rs 250,000

Rs 240,001 to Rs 300,000 10% Rs 250,001 to Rs 500,000

Rs 300,001 to Rs 500,000 20% Rs 500,001 to Rs 1,000,000

Above Rs 500,001 30% Above Rs 1,000,001

TAX SLABS, SENIOR CITIZEN


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Savings, in the form of provident funds whether public provident fund,government provident fund, or employees provident fund

The new DTC savings limit allowed for deduction from the taxable incomehas been increased

Existing Limit Proposed Limit

Rs 120,000 (including

Rs20,000 for investment

in infrastructure bonds)

Rs 150,000 which is decomposed as Rs 100000

for investment in provident funds, pension funds

and other approved securities like gratuity; and

Rs 50,000 for childs tuition fees, life insurance

and health insurance premiums. If you invest in

infrastructure bonds, deduction of an additionalRs 20,000 also can be claimed.

DTC SAVING LIMIT


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DTC IN CASE OF RETIREMENT


Any withdrawal from the Retirement

Benefit Account (RBA) is taxable.

New proposed DTC exempts even

withdrawal.

Employees contribution to his

pension fund that will be deducted

from his taxable income is 1,00,000

per annum.

Employees contribution to his

pension fund that will be deducted

from his taxable income has been

increased to Rs 300,000 per annum.

Retirement is the stage of life after working.


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DTC IN CASE OF MEDICAL

REIMBURSEMENT


Medical reimbursement of only15,000 a year should be exempt

from the tax.

Medical reimbursements of up to Rs50,000 a year will be proposed to be

exempt from tax.

Tax practitioners said that the move will help salaried individualsmeet the cost of some of the surgeries since the present limit waslow and was mostly used up by consultation fees and cost ofmedicines.

Medical reimbursement means compensation claim in case of any medical

treatment or claim in case of money spent on any medical services.


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CAPITAL GAINS

Transfer of capital assets results in capital gains. A capital gainstax is the tax levied on the profit released upon the sale of a

capital asset. According to I.T. Act, 1961 as property of any

kind held by an assessee such as real estate, equity shares,

bonds, jewellery, paintings, art etc. are capital assets.

For tax purposes, there are two types of capital assets:

1. Long term: Long term asset are held by a person for 3 years

except in case of shares or mutual funds which becomes long

term just after one year of holding.

2. Short term: Short term asset are held by a person for not more

than 3 years and in case of shares period has been reduced to 12

months.


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DTC IN CASE OF CAPITAL GAINS


Long term capital gains on shares or securities

or mutual funds on which Securities

Transaction Tax (STT) has been paid and

through recognized stock exchange, then no taxis payable and if not then tax rate is 20%.

In case capital gain on transfer of house

property is fully exempted, if assessee purchaseanother house within 2 years after the sale of

the house or construct a new house within 3

years after the sale of the house.

New DTC has

retained the same

policy of tax on long

term capital gains asit exists in the IT Act.


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Short term capital gains are

now taxed at the rate of

15% for all (17% including

surcharge and cess).

From 1-04-2012 onwards

around 50% of the gain

will be exempt and the rest

will taxed at the income

tax rates 15%


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DTC IN CASE OF INCOME FROM

HOUSE PROPERTY


Under the present provisions of

the Income Tax Act, letting out an

inseparable building along with

plant and machinery is taxableunder 'business income' or 'other

sources' .

According to the new code, it will

be taxable under the head 'income

from house property' .

The concept of notional rent

would be consider in the present

income tax act.

Income from house property is to

be considered only if the property

is let out. Thus, there will be no

element of notional rental income

any more as in the present

regime.


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In case of more than one housethe annual value of self

occupied house property is nil

and tax should be paid on the

other vacant house.

In case an assessee has more than onehouse for self-occupation , the benefit

of nil gross rent will apply only for

one self-occupied house at the option

of the assessee. The computation of

remaining houses will be made as if

the properties are let out.

Deductions for Rent and

Maintenance in case of house

property would be 30%.

Deductions for Rent and

Maintenance in case of house

property will be reduced to

20% in the proposed DTC.


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DTC IN CASE OF DIVIDENDS


According to the income

tax act 1961, dividend

distribution tax is 16.61%.

In the proposed direct tax

code dividend distribution

tax will decreased to 15%

Dividends are payments made by a company to its shareholder members.When a corporation earns a profits or surplus, that money can be put to two

uses: it can either be re-invested in the business called retained earnings, or

it can be paid to the shareholders as a dividend.


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DTC IN CASE OF LTA


In the present system,

leave travel allowance is

completely exempted from

tax.

In the proposed DTC, LTA

will form part of your total

income but qualify for

deduction.

Leave Travel Allowance (LTA) is basically defined as the cost of travel granted

to employees to travel anywhere in India, while on leave from work. The

amount of exemption depends upon the mode of travel, and it is allowed only

towards the travel fare, and not for boarding and lodging.


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DTC FOR NRI


NRI is liable to pay tax on

global income if he is in

India for a period morethan 182 day

In the new bill or proposed

bill, this duration has been

changed to just 60 days.

A Non-Resident Indian is an Indian citizen who has migrated to another

country, a person of Indian origin who is born outside India , or a person of

Indian origin who resides permanently outside India. It also refers to a person

of Indian origin staying in a different global location for employment,

carrying on business or vocation.


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PENALTY IN CASE OF DTC


Currently, a penalty is levied for

concealing the particulars of your

income and if you are able to

convince the Government thatyou didn't intend to evade tax;

you are let off without any

penalty.

Under DTC, tax department will

have more powers to force a

penalty. In the new tax code, you

will be levied penalty even forunder-reporting.

Currently, the penalty for taxevasion will 300% of the tax due.

In new proposed DTC the penaltyfor tax evasion will reduced to

200% of the tax due.


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DTC IN CASE OF CORPORATE TAX


The existing corporate tax rate is33.33% including both surcharge and

cess

The new DTC has proposed a decreasedcorporate tax rate to 30% for a domestic

company. The Bill also seeks to remove

surcharge and cess on corporate tax,

which could provide relief to business

houses.

The tax rate for foreign companies is

40% in current IT act.

The tax rate for foreign companies will

be same as domestic companies instead

of 40% as per IT Act.

Corporate tax refers to direct taxes charged by various jurisdictions on theprofits made by companies or associations and include capital gains of the

company.


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DTC IN CASE OF MAT


18% or (19.93% including surcharge

or cess).

Increased to 20% on Book Profits.

Time period for Minimum AlternateTax (MAT) credit is 10 years.

Time period for Minimum AlternateTax (MAT) credit is extended to 15

years.

MAT means Minimum Alternative Tax charged u/s 115J(B) to the companies.It was first introduced by V.P. Singh when he was the Finance Minister of our

country. He realized that companies declaring huge dividend and paying lesser

tax as they claim a plethora of exemptions. To avoid such things he introduced

MAT which is charged @ 19.93% on the book profit declared by the

company.


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DTC IN CASE OF SEZ ZONE

A Special Economic Zone (SEZ) is a geographical region that haseconomic laws that are more liberal than a country's typical economic laws.

India was one of the first in Asia to recognize the effectiveness of theExport Processing Zone (EPZ) model in promoting exports, with Asia'sfirst EPZ set up in Kandla in 1965.

With a view to overcome the shortcomings experienced on account of the

multiplicity of controls and clearances; absence of world-classinfrastructure, and an unstable fiscal regime and with a view to attractlarger foreign investments in India, the Special Economic Zones Policy wasannounced in April 2000.

Usually the goal of a these Zones is to increase foreign direct investmentsby foreign investors, typically an international business or a multinationalcorporation (MNC).

The main objectives of the SEZ Act are:

(a) generation of additional economic activity.(b) promotion of exports of goods and services.(c) promotion of investment from domestic and foreign sources.(d) creationof employment opportunities.(e) development of infrastructure facilities.


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DTC IN CASE OF SEZ ZONES


Special Economic Zones developers

get tax breaks for all the zones

notified up to end March 2012

The existing tax breaks will continue

to be available if they commence

operations before the end of March

2014.

Presently, SEZ units get 100 percent

tax exemption on profits earned for

first five years, 50 percent for next

five years, besides 50 percentexemption on re-investment. Also,

SEZ developers get 100 percent tax

exemption on profits for 10 years in a

block of 15 years.

SEZ units dont have intention to the

invest the profits in the infrastructure

growth of the country, given the

continued tax exemptions. SEZ unitswill suffer additional tax in the form

of MAT. SEZ units will also have to

pay dividend distribution tax @ 15

percent.


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DTC IN CASE OF EDUCATION CESS

MEANING-: To give a boost to primary education in thecountry and in conformity with the Common Minimum

Programme of the UPA government, Finance Minister

P.Chidambaram on July 2004 proposed to levy a

Educationcess of two per cent on income tax, corporation

tax, excise and customs duties and service tax. The new

cess was expected to yield about Rs 4,000-5,000 crore (Rs

40-50 billion) per annum and the entire amount will be

earmarked for education including provision of nutritious

cooked mid-day meal. The education cess will be a 3 percent surcharge on the total payable tax, and not 3 per cent

of total income.

SURCHARGE AND EDUCATION CESS ARE

ABOLISHED.


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New DTC removes most of thecategories of exempted income. ULIPs,Term deposits, NSC , house loan,

principal repayment, stamp duty andregistration fees on purchase of house

property will loose tax benefits.

Surcharge and education cess areabolished and Tax exemption on LTA(leave travel allowance) is abolished.


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Terms Abolished under new

DTC

Earlier Income Tax Act and Wealth tax Act(Covering Income Tax, TDS, DDT, FBT andWealth taxes) are abolished and single code of

Tax, DTC in place. Concept of Assessment year and previous yearis abolished. Only the Financial Yearterminology exists.

Only status of Non Resident and Residentof India exits. The other status of residentbut not ordinarily resident goes away.

.


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