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Contents of Presentation  Taxation system in India
 Background of Income Tax Act, 1961
 Proposed Direct Tax Code 2010
 Overview with Special reference to Personal Taxation
 Historically, income tax in India has always existed as
elsewhere.
 The old Income Tax Act of 1922 was replaced by the
present Income Tax Act, 1961.
 It was introduced after considering expert opinions of
N.A.Palkhivala, P. Satyanarayan Rao , G.N.Joshi &
many more.
Taxation System in India
 The present Income Tax Act, 1961 levies tax on income
earned by an assessee in India from different sources
during financial year.
 However, continuous evolution to keep pace with
changes in business, to bring to the book the tax
offenders and at the same time provide relief to
innocent taxpayers required changes in tax laws.
Taxation System in India
 This necessitated amendments to Finance legislation
during the year as well as at the year end.
 This resulted in complexities in operation as well as
implementation of various provisions.
 Diverse interpretations also added fuel to fire.
Taxation Systems in India
 Various committees including Tax Reform Committee
(Dr. Raja Chellia) in 1992 and Dr. Kelkar Committee in
2001 impressed upon need to reform and streamlining
of Taxation Laws in India.
 The objective was to simplify and rationalize the
Income Tax Provisions as they stood.
 The concept paper of Direct Tax Code was introduced.
Taxation System of India
 The original DTC had undergone various changes with
latest amendment to Direct Tax Code being proposed
in August 2010.
 The reforms to Direct Tax are being viewed with
reference to DTC, 2010.
Direct Tax Code, 2010
 The present Direct Tax Code is being made effective
April 01, 2012.
 Hence, the provisions shall be applicable for all the
transactions carried during the Financial Year 2011-12
[April 01, 2011 to March 331,2012].
Direct Tax Code, 2010
 Proposed DTC is bulkier than the existing one.
 It has 20 Chapters divided into nine parts.
 It has 319 sections and 22 schedules as against 298
sections and 14 schedules in the existing act.
 Proposed DTC will replace existing Wealth Tax Act,
1957.
Direct Tax Code, 2010
 It deals with –
 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
 Interpretation of the Code.
Direct Tax Code, 2010
 The rates of tax have been included in the act itself.
Hence, these are expected to be of longer duration
rather than frequent changes as of now.
 Same Tax slabs will apply to both men and women.
 The deduction of Rs. 1 Lakh under section 80C for
investments in specified savings schemes has been
raised to Rs. 1.5 Lakhs.
Personal Tax Slabs
Personal Income Tax Rates
Rate
Slab Now
Slab Proposed
0%
Income up to Rs 1.6 lakh for Income up to Rs 2 lakh
men, Rs 1.8 lakh for women for both men & women
10%
Rs 1.6 lakhs to 5 lakhs for Rs 2 lakhs to 5 lakhs
men, Rs 1.8 lakhs to 5 lakhs
for women
20%
Rs 5 lakhs to 8 lakhs
Rs 5 lakhs to 10 lakhs
30%
Above Rs 8 lakhs
Above Rs 10 lakhs
Direct Tax Code, 2010
 The concepts of “previous year” and “assessment year” are proposed to
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be done away with.
For companies, individuals etc the maximum rate of tax is proposed at
30%.
Additionally a domestic company would be required to pay a dividend
distribution tax (DDT) of 15% on dividends declared, distributed or paid.
Minimum Alternate tax (MAT) of 20% would be applicable on a
company in case the tax based on the book profits is higher than the tax
based on the profits as per the normal tax computation.
A foreign company is required to pay an additional branch profits tax of
15% in respect of the branch profits.
Levy of surcharge and education cess is proposed to be done away with.
Residence - Company
 In the case of a company, it is proposed that the
company shall be resident in India if it is an Indian
company or if the place of effective management
(POEM) is in India.
 POEM has been defined to mean the place where the
board of directors or executive directors make their
decisions or the place where such executive directors
or officers of the company perform their functions and
the board of directors routinely approves the
commercial and strategic decisions taken by such
executive directors or officers.
Residence - Individual
 In all cases, other than an individual, the persons
would be a resident in India, if the place of control and
management of the affairs, at any time of the year is
situated wholly, or partly, in India.
Computation of Total Income
Income from Ordinary
Sources
Income from Special
Sources
Income from Employment Income of Non-Residents
House Property Income
Winning from RaceHorses
Business Income
Winnings from Lottery
Capital Gains
Residuary Sources
Personal Taxes
 Changes in income slabs which will result in incremental savings in tax.
 The concept of Not ordinarily resident is removed. The condition of
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729 days has been retained to determine the taxability of overseas
income of an individual
A person not entitled to HRA is allowed a deduction of rent paid up
to 10% of GTI or INR 2,000 per month & other conditions as may be
prescribed
Exemption for medical expenses has been increased to INR 50,000.
Contribution to approved funds is deductible to the extent of INR 1
lakh.
Deduction for insurance premium (not exceed five percent. of the
capital sum assured), Health Insurance covered & Tuition fees to the
extent of INR 50,000.
Wealth tax to be levied at 1% for wealth in excess of INR 10 million
Capital Gains
 Income from all investment assets to be computed under the
head „Capital gains. Investment asset to include any capital asset
which is not a business capital asset, any security held by a
Foreign Institutional Investor and any undertaking or division of
a business.
 Distinction between short-term investment asset and long-term
investment asset on the basis of the length of holding of the
asset to be eliminated.
 No tax on gains on transfer of shares of a company or unit of
equity oriented fund that are held for more than one year and
such transfer is chargeable to Securities Transaction Tax (“STT”).
STT would be chargeable on transfer of equity shares of a
company or a unit of an equity oriented fund.
Capital Gains
 Fifty percent of the capital gains are allowed as deduction
on transfer of shares of a company or unit of equity
oriented fund that are held for a period of one year or less
and such transfer is chargeable to STT.
 The base date for determining the cost of acquisition to
be shifted from 1 April 1981 to 1 April 2000. Consequently,
all unrealized capital gains on assets between 1 April 1981
and 31 March 2000 not to be liable to tax.
 Cost of acquisition to be Nil, if cannot be determined or
ascertained for any reason.
Anti- abuse provisions –
General Anti Avoidance Rules
 The characteristics of the originally proposed rules have
been retained.
 Additionally it is proposed that an arrangement would be
presumed for obtaining a tax benefit would include
reduction in tax base including increase in losses. The
provisions would be applicable as per the guidelines to be
framed by the Central Government.
 Further the definition of lacking commercial substance
has been amended to clarify that obtaining tax benefit
cannot be the only criteria for applicability of GAAR.
Income from house property
 Income from house property on the basis of gross rent i.e. the
amount of rent received or receivable contractually for the
financial year
 Deduction on account of interest on housing loan in case of a
self occupied property (subject to an upper limit of `150,000) as
well as pre- construction/ acquisition period interest in five
equal installments
 no relief has been provided for the principal amount of
repayment of loan as is prevailing in Section 80C of the present
Income-tax Act
 standard deduction on account of repairs and maintenance has
been reduced from the existing 30% of (gross rent less
municipal taxes) to 20% of gross rent
Wealth Tax
 All assessees are covered other than a nonprofit
organization.
 At present only few assets are covered. However, the
proposed code proposes to add tax also on following
specified assets –
 Archaeological collections, Drawings, sculptures or any other work of Art.
 Watch having value in excess of Rs 50000/-.
 Interest in foreign trust or any other body located outside India (Whether
incorporated or not) other than a foreign company.
 Equity or preference shares held by a resident in a CFC.
 Cash in hand in excess of ` 2,00,000/- in case of an individual.
 Bank deposits outside India, in case of individuals and HUFs, and in the case of
other persons, any such deposit not recorded in the books of account.
Criticism –
 Many experts are seeking an answer to the question,
‘Do we need the new code in the present form?’
 The new DTC may not reduce litigation but might as
well provide new controversies and more room for
litigations and disputes.
 A company may be treated as ‘resident’ in India even if
its effective management is partly situated in India.
This being subjective, may lead to controversies.
 In cases of prosecution, the minimum fine has been
prescribed at Rs. 50,000/- as against ‘NIL’ in the
present act.
Criticism contd. . .
 Commissioner (Appeals) has been restricted to
consider matters considered by AO as against the wide
power in the existing act.
 General Anti Avoidance Rules have been prescribed in
such a manner to cast duty on assessee to prove that
his affairs were not entered into for avoidance of tax.
 Other administrative provisions also are under
criticism.
Sum up –
 DTC has proposed simplifications which are not so
simple.
 The changes in the DTC Draft within 1 year leaves one
wondering as to the fate of future contents or changes
till DTC replaces present Income Tax Act, 1961.
 Personal Taxation has brought relief to individuals.
 Rules as to withholding tax have been more or less
retained same.