DIRECT TAX CODE BILL ….intrdocued!

[Mr. M. GOVINDARAJAN]

INTRODUCTION:

The Direct Taxes Code Bill, 2010

The Direct Tax Code is expected to be introduced with effect from 1^st April, 2010 since the draft code has been put open to the people for their comments.   Comments were received from various corners on draft code. Accordingly the Government has issued revised draft code considering the comments of the public.  The Government was also in the plea to introduced Direct Tax Code, replacing the existing Income Tax Act and Wealth Tax Act with effect from 1^st April, 2010 and decided to table the same in the Parliament in the current sessions.

As planned the Direct Tax Code Bill has been introduced in the Lok Sabha on Monday, the 30^th August, 2010. The present bill is bulkier than the present Income Tax Act, having 319 sections and twenty two schedules. The bill has 20 chapters divided into nine parts. Some of the features of the bill are as follows:

For individuals:

The income slab in the new bill for individuals is as follows:

INCOME SLAB	TAX RATE
Up to Rs.2 lakh	NIL
Rs. 2 lakh - 5 lakh	10% on income exceeding 2 lakh
Rs. 5 lakh - Rs. 10 lakh	Rs.30,000 + 20% on income exceeding Rs. 5 lakh
Over Rs.10 lakh	Rs.1,30,000 + 30% on income exceeding Rs. 10 lakh

According to the new bill the women could not enjoy the current special exemptions over and above what men get with effect from 1^st April, 2012. Only senior citizens will get extra relief. The annual income of up to Rs.2.5 lakh is not to be paid tax.

Investment limit - Rs.1 lakh as existing at present;

Additional investment amount Rs.50,000 is extended to spend on life insurance premia, tuition fee for children and health insurance payment;

Rs.1.5 lakh interest paid on home loans as deduction;

Continuing the Exempt-Exempt-Exempt system of taxation, implying there will be no tax when an individual withdraws his savings from provident funds, pension fund, commutation and post retirement schemes;

The biggest beneficiaries of the DTC bill, as correctly said by Shri S.S. N. Moorthy, the CBDT Chairman, will be the lower and middle-middle class since the exemption limit is increased to Rs.2 lakh and the most of existing tax payers are in the income slabs up to Rs.5 lakh.

For Companies:

The current tax rate 30% will be continued;

There will be no surcharge;

The Minimum Alternative Tax (MAT) rate will be 20% and levied on book profits;

Companies can carry forward MAT credit for 15 years;

In case of foreign companies the tax rate will be 30%;

For foreign companies there will also a branch profits tax of 15%;

For Special Economic Zones:

SEZ developers will continue to get current tax breaks for all the zones notified  up to the end March 2012;

The existing tax breaks will continue to be available to SEZ units, if they commence operations before the end of March 2014;

MAT and dividend distribution tax will be applicable on SEZs and SEZ units;

International Taxation:

The original draft code proposed to take away the treaty override benefit. It also suggested that neither the treaty nor the code shall have preferential status.   It was also proposed that provision of treaty or the code whichever is later in time, will prevail over the other.

Now the same has been changed. The new bill restored the position of allowing the treaty override - an assessee can choose between domestic law or treaty provisions, whichever is beneficial.

Long term capital gains:

The draft code seeks to exempt long term capital gains from the sale of shares through stock exchange. The present seeks to bring long term capital gains to tax under a graded system.

Securities transactions tax:

The Securities transactions tax will continue as per the new bill.

Wealth Tax:

It is proposed to levy a rate of one per cent for wealth exceeding Rs.1 crore.

Dividend Distribution Tax:

It is proposed to levy a rate of 5% by way of dividend distribution tax.

Others:

The new bill discusses with a number of subjects including income tax, dividend distribution tax, tax on distributed income, branch profit tax, wealth tax, prevention of abuse of the code, tax management, general provisions and interpretations of the code. The sections deal with many issues such as-

Basis of charge of the tax;

Computation of total income;

Foreign tax credit;

Income from business and residuary sources;

Capital gains;

Tax incentives;

Special provisions relating to the computation of total income of non profit organizations;

Tax deduction at source;

Advance tax;

Payment of wealth tax;

Recovery, prosecution and penalties.

Conclusion:

The new bill appears more diluted than the draft bill. It will be expected that the bill is to go to Parliamentary Standing Committee for review. The delay in implementation of the bill is due to the rules are to be framed based on the new bill. The Department has to give training to be imparted on the income tax officials on both the income tax software and the law itself. Many a comment on the bill, new suggestions may come from various experts, stakeholders, professionals and it may be expected that the bill will still undergo changes till it becomes an Act.