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acts and rules
Salient Features of the Direct Taxes Code Bill, 2010:
The Finance Minister tabled the Direct Taxes Code Bill, 2010 (DTC 2010) in the Parliament on 30 August 2010 which is proposed to come into force on 1 April 2012. Some of the salient features are outlined below:
- The Code proposes that every person shall be liable to pay income-tax in respect of the total income for the financial year. The concepts of "previous year" and "assessment year" are proposed to be done away with.
- Rates of tax as applicable to the persons are proposed under a schedule; 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.
- 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.
- 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.
- Additional source rules for income arising to a non- resident are proposed to be introduced as income deemed to accrue in India; for e.g. insurance premium including reinsurance covering any risk in India, from the transfer of any share or interest in a foreign company, where the fair market value of the assets in India
owned by the company represent at least 50% of the fair market value of all the assets owned by the company etc.
Computation of total income
Income has been proposed to be classified as income from ordinary sources and income from special sources; Income from ordinary sources would comprise of income from employment, house property, business, capital gains and residuary sources. Income from special sources would refer to specified income of non -residents, winning from racehorses, lottery etc. However where the income of a non resident is attributable to a PE, then the same would not be considered as income from special sources.
- Changes in income slabs which will result in incremental savings in tax.
- The concept of „Not ordinarily resident? is removed. The condition of 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 upto 10% of GTI or INR 2000 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 lacs.
- 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
- 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.
- 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.
- Capital loss to be allowed to set off only against capital gains. The capital loss can be carried forward for indefinite period.
- Computation of book profits broadly similar to existing law
- Credit for tax paid under DTC 2010, would be available. The credit would be allowed to be carried forward for 15 years.
- MAT now applicable to SEZ developers and units in an SEZ
The DTC 2010 provides for expenditure based incentives wherein capital expenditure incurred by the specified business would be allowed as a deduction. Specified businesses, amongst others would include generation,
transmission or distribution of power, developing or operating and maintaining any infrastructure facility, operating a maintaining a hospital in a specified area, SEZ developers and units established in an SEZ, exploration and production of mineral oil or natural gas, setting up and operating a cold chain facility, developing and building a housing project under a scheme of slum redevelopment etc.
Grandfathering provisions for SEZ developers and SEZ Units
Grandfathering of profit linked incentives under the Income-tax act, 1961 to continue for SEZ developers notified on or before 31 March 2012. In case of SEZ units, the deduction would be permissible for units commencing operations on or before 31 March 2014
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