Direct+Tax+Code

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Paper Presentation on

DIRECT TAX CODE

BILL 2009

By

CA. Vijay R KalaniM.Com, ACA, LCS, ICWAI (FNL)


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DIRECT TAX CODE BILL, 2009

The Direct Tax Code (DTC

) 2009 is to come into force on 1 April,

2011, if enacted

The concept of previous year has been replaced with a new concept

of financial year which inter alia means a period of 12 months

commencing from the 1st day of April

Every person is liable to pay income-tax in respect of his total income

for the financial year at the rates / conditions specified in the

Schedules to the DTC after allowing credit for pre-paid taxes

(including foreign tax credits)

Income has been proposed to be classified into two broad groups:

Income from Ordinary Sources and income from Special Sources

CA. Vijay R Kalani,Nanded


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DIRECT TAX CODE BILL, 2009 Income from Ordinary Sources refers to:

- Income from employment

- Income from house property

- Income from business

- Capital Gains- Income from Residuary Sources

Income from Special Sources to include specified income of non-

residents, winning from lotteries, horse races, etc.

Losses arising from Ordinary sources to be eligible for set off orcarry forward and set-off against income only from ordinary sources

without any time limit.

Similar treatment for set off and carry forward of losses from Special

sources.



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DIRECT TAX CODE BILL, 2009General Rules

Total income of the tax payer to be the aggregate of Income fromOrdinary Sources and Income from Special sources.

Loss under the head 'Capital gains' and loss from speculative

business will not be allowed to be set off against income under other

heads.

Losses to be allowed to be carried forward indefinitely for set-off inthe subsequent financial years.

Certain expenses such as expenditure attributable to tax free

income, expenditure incurred for any purpose prohibited by law,

provision for unascertained liability, etc. not to be allowed as

deduction in computing the total income. Payments in respect of which tax has not been deducted at source

to be disallowed; however, deduction to be allowed in the year of

payment, subject to certain exceptions. Where the payment is made

after two years from the end of the financial year in which the tax

was deductible at source, no deduction to be allowedCA. Vijay R Kalani,

Nanded


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DIRECT TAX CODE BILL, 2009Rules for computation of heads of income falling within income from

ordinary sources

Income from employment

Gross salary, including the value of perquisites and profits in lieu of salary,

to be taxed on due or receipt basis, whichever is earlier and to be reduced

by permissible deductions.

Permissible deductions to include professional tax, transport allowance,prescribed special allowance, compensation under voluntary retirement

scheme, gratuity, commutation of pension, amongst others.

Income from house property

Income from house property to be the gross rent less specified deductions.

Gross rent to be higher of contractual rent or presumptive rent calculated at6% per annum of the rateable value fixed by local authority / 6% of cost of

construction or acquisition of property (in the absence of rateable value).

Advance rent to be taxed in the financial year to which it relates to.



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DIRECT TAX CODE BILL, 2009Income from house property

The following deductions will be admissible against the gross rent:

Amount of taxes levied by a local authority and tax on services, if

actually paid

20% of the gross rent towards repairs and maintenance

The amount of any interest payable on:

Capital borrowed for the purposes of acquiring, constructing,

repairing, renewing or reconstructing the property (i.e. the standard

limits at present regarding to interest being allowed as a deduction

shall be thrashed and full amount of interest shall be allowed as a

deduction from the gross rent)

Amount of any interest on capital borrowed for the purpose ofrepayment of the capital borrowed for the purposes of acquiring,

constructing, repairing, renewing or reconstructing the property

In case of self-occupied property, the gross rent of one self-

occupied property will be deemed to be nil, as at present and

no deduction for interest will be allowedCA. Vijay R Kalani,Nanded


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DIRECT TAX CODE BILL, 2009Income from business

Every business to constitute a separate source for the purpose ofcomputation of income provided there is no interdependence

between the two businesses.

Key features of the provisions relating to computation of business

income are:

All assets to be classified into business and investment assets,wherein business assets to be further classified into business

trading assets and business capital assets.

Only income from transactions in business assets to form part of

business income.

Profit on sale of business capital assets, profit on sale of anundertaking under a slump sale, transfer of any self generated

business asset, etc. to be treated as business income.

Business expenditure to be classified into (i) operating expenditure

(ii) permitted financial charges and (iii) capital allowances as

defined. CA. Vijay R Kalani,Nanded


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DIRECT TAX CODE BILL, 2009Income from business

The Assessing Officer may restrict the amount of deduction

under this section to such amount as he considers appropriate

having regard to the use of the asset for the purposes of the

business if such asset is not exclusively used for the purposes

of the business Loss on sale of business capital assets (which was hitherto treated

as a capital loss) to be treated as an intangible asset on which

depreciation to be allowed. Effectively, a taxpayer will be allowed to

set-off only a fraction of loss every year.

Presumptive basis of taxation to apply for certain businesses. Separate income determination regimes provided for certain

specified businesses such as business of insurance, operating a

qualifying ship, mineral oil or natural gas, generation, transmission

or distribution of power, developing a special economic zone, etc.



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DIRECT TAX CODE BILL, 2009Income from capital gains

Definition of capital assets have been modified and replaced withthe term investment asset. Investment asset does not include

business assets like self generated assets, right to manufacture and

other capital asset connected with the business

All gains from sale of investment asset would be considered as

capital gains without any distinction as to short term and longterm and is to be taxable. Further, the indexation facility would be

available to all investment assets held for more than one year

Gains and losses to be included in the total income of the financial

year in which the investment asset is transferredirrespective of the

year of receipt of consideration, except in the case of compulsoryacquisition of an asset.

Capital gains arising from transfer of personal effects and

agricultural land excluded from the ambit of taxation.

Base date for determining cost of acquisition for the purpose of

computing capital gains shifted from 1 April1981 to 1 April 2000.CA. Vijay R Kalani,

Nanded


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DIRECT TAX CODE BILL, 2009Income from capital gains

Securities Transaction Tax to be abolished.

Benefit of indexation available in computing capital gains on transfer

of capital assets held for more than one year.

If the cost of acquisition/ cost of improvement of an asset is not

determinable by the tax payer, for example in the case of self-

generated assets, then such cost shall be taken as nil and capitalgains to be computed.

Income from residuary source

Residuary income to comprise any income which does not form part

of any other head of income.

The scope of gross residuary income widened to include income

having incidental nexus with some other head of income.

Any amount exceeding Rs. 20,000, taken or accepted or repaid

as loan or deposit otherwise than by account payee cheque or

draft to be taxed as income from residuary sources.CA. Vijay R Kalani,

Nanded


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DIRECT TAX CODE BILL, 2009


Person Slab of Income Rate of Tax

Individual &HUF

Up to Rs. 160000*

Rs. 160000 Rs. 1000000

Rs. 1000000 Rs. 2500000

Rs. 2500000 and above

NIL

10%

20%

30%

Co-operative

Society

Up to Rs. Nil Rs. 10000

Income Rs. 10000 Rs. 20000

Income Rs. 20000 and above

10%

20%

30%

Companies Any Income 25%

Unincorporated Bodies, Local Authority &

Income derive from lottery or crossword

Puzzle, Race, including horse race, Card gameor any other game or gambling or betting

30%

* Women Up to Rs. 190000 & Senior Citizen Up to Rs. 240000


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DIRECT TAX CODE BILL, 2009Exempt-Exempt-Tax (EET) regime for savings scheme

All long-term retrial savings schemes are proposed to be moved to the EETregime

Contributions (both by employee and employer) ofup to Rs 3 lakhs to any

account with permitted savings intermediaries is proposed to be deductible

Accretion of income till withdrawal is exempt

Any withdrawal made under any circumstances is taxable.

Savings from one eligible savings scheme to another, is not to be treated as

a withdrawal

Permitted savings intermediaries to include approved provident and

superannuation funds, life insurer and New Pension System Trust.

Other Deductions

Aggregate deductions for above long term eligible savings along with tuitionfees paid proposed to be increased from Rs 1 lakh to Rs 3 lakhs

No further investments eligible.



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DIRECT TAX CODE BILL, 2009Maintenance of Records

Section 83 under New Tax Code provides for Maintenance of records.

Currently section 44AA under Income Tax Act,1961 deals with maintenanceof records which is mandatory for specified professionals such as persons

carrying on legal, medical, engineering , architectural profession or

profession of accountancy, technical consultancy and interior decorator.

In addition of the above, in section 83 of the New Tax Code it shall be

mandatory for a person carrying on business to maintain books of

accounts if;

His income from the business exceeds 2 lakh rupees;

His total turnover or gross receipts, in the business exceeds ten lakh

rupees in any one of the three financial year immediately preceding the

relevant financial year; or

If business is newly set up in any financial year, income from business islikely to exceed two lakh rupees or his total turnover or gross receipts, as

the case may be, in the business is likely to exceed ten lakh rupees, during

such financial year.



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DIRECT TAX CODE BILL, 2009 Under New Tax Code following books of accounts are prescribed:

Cash book; Journal, if the accounts are maintained according to the mercantile

system of accounting;

A ledger;

Register of daily inventory of business trading asset;

Carbon copies of serially numbered bills issued by the person, if thevalue of the bill exceeds fifty rupees;

Carbon copies or counterfoils of serially numbered receipts issued

by the person, if the value of the bill exceeds fifty rupees;

Original bills or receipts issued to the person in respect of

expenditure incurred by him, if the amount of the expenditureexceeds fifty rupees;

Payment vouchers prepared and signed by the person in respect of

expenditure not exceeding fifty rupees, if there are no bills or

receipts for such expenditure.



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DIRECT TAX CODE BILL, 2009Wealth Tax

Individuals, HUF and Private DiscretionaryTrusts are liable to

wealth tax

Wealth to be taxable at 0.25 percentof net wealth

Basic exemption limit has been enhanced to Rs. 50 Crores.

Threshold limit of Rs. 50 crores not to apply to a private

discretionary trust.

New concept of wealth includes all assets except exempt specially.



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DIRECT TAX CODE BILL, 2009Return of Income and Assessment

The due date for filing the return of income for non-corporatetaxpayers is to be 30 June of the year following the financial year

and for other assesses is to be 31 August.

Belated / Revised return can be filed within 21 months from the end

of the financial year as stipulated

An electronic acknowledgement to be issued on receipt of eachreturn of tax bases and initial processing to be completed within 12

months from the month in which the return is filed

Selection of cases for scrutinywill be made within four months

from the end of the year in which the return is furnished in

accordance with a risk management strategy framed by CentralBoard of Direct Taxes, which will not be revealed to any member

of the public

The time limit for rectification of mistake in the order / intimation is to

be two years from the end of the year in which the order / intimation

is passedCA. Vijay R Kalani,

Nanded


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DIRECT TAX CODE BILL, 2009Return of Income and Assessment

Assessment to be generally completed within 21 months from theend of the financial year in which the return is furnished

Assessment of taxes after search and seizure operations to be

treated as tax base escaped assessment and would be subject to

re-opening.

Penalty & Prosecution

Maximum amount of penalty that can be levied is reduced to 2

times from the existing 3 times of the tax sought to be evaded

In the case of individuals and cooperative societies, penalty will be

calculated at the maximum marginal rate of tax

No income tax authority to have the power to waive the penalty

imposed

Provisions made for compounding of an offence



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With Thanks & Regards

CA. Vijay R Kalani

Vijay R Kalani & Co.

Chartered AccountantsSevasadan, New Mondha,

Maganpura, Nanded 431602

E-mail : [email protected]

Mobile : 94232 13129, Phone : 02462 222775

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