Direct Taxes Code Bill, 2009

PART II-

16th December, 2009

Synopsis – Covered on 15.9.2009 –For memory lane

Introduction Rates of Tax New Definitions Residence Income deemed to accrue in India Scope of Total Income Tax Deduction at Source Branch Profit Tax

Areas under Direct Tax Code- Considered for the day Classification of sources of income Income from House Property Income from Employment Maintenance of accounts and other related

matters Income from Business Capital Gains Income from Residuary Sources Tax Incentives Computation

Classification of sources of income

Income will be broadly taxable under two heads namely Income from Special Sources Income from Ordinary Sources

Income from Special Sources

Specified Income of non residents

Winning from LotteriesWinning from

race horses

Income from Ordinary Sources

Income from Ordinary Sources

Income from House PropertyIncome from Business

Income From Employment Capital Gains

Income from Residuary Sources

Income from House Property

Letting of the property in the nature of trade, commerce or business is also covered

Property which is not ready for use during the financial year is not covered

The advance rent will be taxed only in the financial year to which it relates

Income from house property Gross Rent proposed to be calculated as higher of contractual rent

or a presumptive rate of six percent of rateable value/construction/acquisition cost

No deduction on interest on housing loan

Income from House Property (cont)…

Deduction for repairs and maintenance reduced to 20 percent of the Gross Rent (presently 30%)

Taxes paid to local authority allowable on payment basis

Service tax deductible on payment basis In the case of self occupied property where

the gross rent is NIL, NO DEDUCTION for taxes and interest will be allowed

Income from Employment Salary due or paid (including arrears or advance) employer or former

employer Employment income = Gross Salary- Aggregate of specified deductions Distinction between Government and private sector employers – no more

while taxing perks Exemptions –

Profession Tax Conveyance Allowance Pension received by gallantry awardees Voluntary retirement or termination of service or voluntary separation under

any scheme Amount received in commutation of pension Amount of gratuity received on retirement or death But, alas !!!!taxable at the time of withdrawal, mostly on retirement,

disturbing his withdrawn life when he requires solace !!! Exemptions –Not specified, hence taxable

House Rent Allowance Leave Travel Concession Leave Encashment Tax on non- monetary perquisite borne by employer Medical reimbursements

Income from Employment – Looks Old is Gold !!!!

Particulars Under PresentAct( Rs.)

Under NewCode (Rs.)

Basic salary 2,00,000 2,00,000

Conveyance allowance 9,600

Exempted under sec10(16)

9,600 0 0

House rent allowance 1,08,000

Deduction u/s10(10)13A

90,000 18,000 1,08,000

Income from Employment - Old is Gold !!!!

Commuted value of superannuation (to repay HL)

0 2,00,000

Leave encashment at retirement (TO REPAY HL)

2,00,000 0 2,00,000

Leave travel concession

18,000 0 18,000

EPF (withdrawn for daughter’s marriage)

0 6,50,000

Medical allowance 15,000 0 15,000

Income from Employment – Looks Old is Gold !!!! Warrants a relook to eschew avoidable upheaval

Food coupons 5,000 0 5,000

Children educational allowance

84,000

Exempted portion for 2 child

9,600 74,400 84,000

Interest on Housing Loan

1,50,000 -1,50,000 0

Gratuity( Withdrawn for daughter’s marriage)

0 3,00,000

Total taxable salary 3,42,400 17,80,000

Total tax payable 0 2,40,000

Maintenance of accounts and other related matters Every person shall keep and maintain such books of

account and other documents Every person who has entered into an international

transaction shall keep and maintain such information and document

No minimum threshold limit for professionals However, any other person carrying on business

his income from the business exceeds two lakh rupees; his total turnover or gross exceeds ten lakh rupees in any one of the three

financial years immediately preceding the relevant financial year Threshold limit for tax audit for business and profession

remain unchanged Cash or mercantile system of accounting regularly

employed tax, duty, cess or fee actually paid or incurred by the assessee to bring the

goods to the place of its location and condition as on the date of valuation

Income from Business Income of distinct and separate businesses

i.e .where there is no interlacing, inter-dependence and unity of businesses as stipulated, is to be computed separately

Income of each business shall be computed separately Business of operating a qualifying ship Tenth

Schedule Business of mineral oil or natural gas Eleventh

Schedule Business of developing a special economic zone

Twelveth Schedule Business specified in Rule 1 of the Thirteenth

Schedule Thirteenth Schedule

Income from Business (cont)… Business listed in column (2) of the Table in the

Fourteenth Schedule whose income is determined on presumptive basis

Differentiation between “Set up of business” implying readiness as against “actual commencement of operation” introduced Amount paid towards capital borrowed

in the case of a new business, prior to the date of commencement of such business; and

in any other case, prior to the date on which such asset was first put to use;

Income from Business (cont)… Cash assistance, subsidy or grant, by whatever name

called, received from any person for, or in connection with, the business

Remission, drawback or refund of any tax, duty or cess, received from the Government

Profit on transfer of any business capital asset Consideration accrued or received on account of

slump sale Amount accrued or received as reimbursement of any

expenditure incurred Amount accrued or received, whether as advance,

security deposit or otherwise, from the long term leasing, or transfer of whole or part of any business asset; or any interest in any business asset;

Amount accrued or received on account of the cessation, termination or forfeiture of any agreement entered in the course of the business

Income from Business (cont)… Deduction for business expenditure

Operating expenditure for the purpose of business Specific expenditure including net worth of assets transferred in

slump sale Includes “Other expenditure akin to sec 37

Permitted finance charges for the purpose of business Interest paid on capital borrowed or debt incurred, trade creditors

Capital allowances- Depreciation including initial depreciation, research and development expenditure and amortization of business capital assets;

Exception for capital expenditure on any building which is held by the person under a lease or other right of occupancy

Depreciation to be allowed even though the block of asset is empty New class of assets covering deferred revenue expenditure like non

compete fees, lease premium, business reorganization expenditure @ 25 %

Capital Gains

The base year for calculation of capital gains shifted from 1.4.1981 to 1.4.2000

Capital loss will not be allowed to be set off against any other income

Inflation indexation of cost of acquisition/improvement to continue

Transfer of asset as gift will not attract capital gain provisions

Gains not taxed (rollover benefit) if invested in approved capital gains savings scheme, first residential house, farm land

Cost of acquisition to be nil if it cannot be determined or ascertained for any reason

Security transactions tax  to be withdrawn and capital gains to be taxed in new format

Capital gains on shares and securities to be taxed as income. Distinction between long-term and short-term capital assets to

go All withdrawals from any capital gains savings scheme will be

included in residual income

Capital Gains (cont)… Capital Gain will be chargeable on investment asset

Business assets like self generated assets, right to manufacture and other capital assets related to the business will not be included

Further ,the indexation facility would be available to all investment assets held for more than one year

Cost of acquisition/ improvement of an asset is not determinable then the cost is to be taken as “NIL”

Current income from capital gains = full value of the consideration- aggregate amount of the deductions The higher of the stamp duty value of the asset and the value of the asset ascertained on

reference, if any, to the Valuation Officer. Indexed cost of acquisition will be available if investment asset is transferred at any time

after one year from the end of the financial year in which the asset is acquired The losses under this head will be allowed to be carried

forward for any number of years for set off against the income under this head only – Atleast a relief !!!!

Relief for rollover of investment Individual or a Hindu undivided family

purchase or in construction of the new asset within one year before the beginning of the

financial year during the financial year

Amount deposited in an account in any post office as against banking organisation

Agricultural land -One or more pieces of agricultural land

Any investment - Residential house

Income from Residuary sources- In the footprints of politicians for a change in name !!!! Dividends, other than dividends in respect of which dividend

distribution tax

Interest, other than interest accrued to, or received by, permitted financial institutions

Income from the activity of owning and maintaining horses for running in horse race;

Amount received under a Keyman insurance policy

Amount of voluntary contribution received by a person, other than an individual or a Hindu undivided family, from any other person

Account of settlement or breach of any contract The redemption or withdrawal of the principal amount from any

investment that is eligible for deduction in computing the total income

Any sum received under a life insurance policy, including bonus if any, shall be exempted from tax provided it is a pure life insurance policy. The term pure life insurance means that premium payable for any of the years during the term of the policy does not exceed 5% of the sum assured – If less than that may come under the clutch of tax net

Income from Residuary sources (cont)…

Payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque –Rs.30,000 for goods carriage and Rs.20,000 for others

Cessation, termination or forfeiture of any agreement entered by the person

Reimbursement of any expenditure incurred by the person

Advance, security deposit or otherwise, from the long term leasing or transfer of whole or part of, or any interest

Tax Incentives Available from Gross total income from ordinary

sources The profit-linked tax incentives and other tax

incentives not covered in the DTC are to be grandfathered

Shift from profit-linked incentives to Capital –linked incentive

The new scheme will apply to the following businesses: Generation, transmission or distribution of power Developing or operating and maintaining any infrastructure facility Operating and maintaining a hospital in specified area Processing, preservation and packaging of fruits and vegetables Laying and operating of a cross country natural gas or crude or

petroleum oil pipeline network for distribution, including storage facilities being an integral part of the network

Tax Incentives (cont)… Setting up and operating a cold chain facility Setting up and operating a warehousing facility for the storage

of agricultural produce Exploration and production of mineral or natural gas Developing a Special Economic Zone

Incentive by way of  tax savings investments to individual and HUF will be up to Rupees 3 lakhs

Deposited with any permitted savings intermediary

Tax Incentives (cont)… Deductions in respect of children’s education

Paid as tuition fee to any university, college, school or other educational institution situated within India; and

For the purpose of full-time education of any two children of such individual or Hindu undivided family (other than towards development fees or donation)

Deduction in respect of interest on loan taken for higher education of himself or relative any amount actually paid

Deduction in respect of health insurance premia

Tax Incentives (cont)… Deduction in respect of medical treatment, etc. Deduction in respect of maintenance of a disabled

dependant Deduction in respect of donations to certain funds,

non-profit organisations, etc. Deduction in respect of royalty income, etc., of

authors of certain books Deduction in respect of royalty on patents Expenditure for promoting family planning and

preventing HIV-aids – Available to companies

Computation

Income from Special sources- Loss from Special source can d indefinitely be set off

Income from Ordinary sources- Loss from Ordinary source can be set off

Unabsorbed losses can be C/Fd Loss from business can be set off against income

from employment Distinction between business loss and

unabsorbed depreciation to be done away with Return of income to be furnished by the due date

Unabsorbed current capital loss Unabsorbed current loss from ordinary sources Unabsorbed current loss from the special source

Aggregation of incomeIncome under any head of income, other than ‘Capital gains xxx

Income under the head ‘Capital gains’(current income from capital gains + unabsorbed preceding year capital loss)

xxx

Current income from ordinary sources xxx

Less : Unabsorbed preceding year loss from the ordinary sources xxx

Gross total income from ordinary sources (if negative unabsorbed current loss from ordinary sources’, for the financial year)

xxx

Current income from the special source xxx

Less :Unabsorbed preceding year loss from the special source xxx

Gross total income from special sources (if negative unabsorbed current loss from ordinary sources’, for the financial year)

xxx

Total income = Gross total income from ordinary sources - Aggregate amount of deductions allowed under sub-chapter I +Total income from special sources

xxx

Thank You

Any Questions ??