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disturbing his withdrawn life when he requires solace !!!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 ??
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