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Direct Taxes Code Bill, 2010 v.1
Direct Taxes Code Bill, 2010 v.1
Direct Taxes Code Bill, 2010 v.1
CONTENTS
Philosophy and Strategy of DTC
Personal Tax Highlights Rates of Tax Scope of Total Income Income From Employment Income from House Property Tax Incentives & Retirement Benefits Deduction of Tax at Source Wealth Tax
Philosophy
Strategy
Expand tax base by adopting a comprehensive definition of income by including all accruals and receipts of revenue and capital nature unless otherwise specified. Remove tax exemptions to achieve equity, reduce compliance cost, lower administrative burden, discourage corruption.
Liberalize tax rates -expected to yield existing level of revenues with the revised comprehensive tax base.
Provide limited exemptions. Provide exceptions, essentially in the nature of deferrals, with a view to mitigating the problem of liquidity.
RATES OF TAX
TAX RATES
Income Slab (Rs.) Upto Rs.1,80,000* 1,80,000 to 5,00,000 5,00,000 to 8,00,000 Above Rs 8,00,000 10,00,000 to 25,00,000 Above Rs. 25,00,000
RATES OF TAX
Proposed Rates Nil 1,50,000 Income (Rs.) Current tax (Rs.) Nil 14,420 55,620 1,32,870 2,10,120 5,19,120
3,00,000 20% 10% 30% 30% 30% 20% 30% 5,00,000 7,50,000 10,00,000 20,00,000
*Higher limits for working women and senior citizens Direct Tax Code, 2010 8
10
Outside India
Income accrued / deemed to accrue * Income received *
12
Proposed provision
Impact
Definition
of
Employer
employer
specified.
defined to mean an entity which controls and directs the individual under express or implied employment contract and is obligated to pay compensation to him.
Concept
Existing provision
Not
Proposed provision
With reference to the employee, the term person, individual, employee and assesses is used in different sections, and sometimes differently within the same section.
Impact
Inconsistency
of
employee
specified.
in terms used
Impact
Commuted
Fully
but tax may be deferred provided amount is deposited in a Retirement Benefit Account (RBA).
Withdrawals
Parity
to EET principle.
Impact
VRS
Conditionally
Conforms
to EET principle.
Existing provision
Taxable
Proposed provision
Taxable
Impact
Parity
encashment
if received while in employment (Relief of tax available). If received on retirement or otherwise, fully exempt for Government employees and partial exempt for private employees.
None
Retirement
Existing provision
Exempt
Proposed provision
Deductible
Impact
To
up to 800
allowance
p.m.
HRA
Exempt
Prima
facie
taxable.
Existing provision
Exemption for Prescribed allowances u/s 10(14) : Rule 2BB(1) such as To meet expenses away from normal place of duty ( also called Per Diems) Rule 2BB(2) such as To meet personal expenses at place of employment or residence
Personal
Proposed provision
Impact
Will
as prescribed to the extent actually incurred. Impact will be clear once rules are prescribed.
Only
Allowances
like compensatory allowance, children education allowance, etc., will now be fully taxable.
allowance for performing duties of special nature, related to place of posting or residence
Taxable
Existing provision
Valued
Proposed provision
Valuation
Impact
Parity
of treatment between Government and non-Government employee. Impact can be ascertained once Rules are prescribed. HRA stands withdrawn while accommodation continues.
Existing provision
Exempt
Proposed provision
Taxable.
Impact
Will
(subject to limits).
Motor
car; domestic
Valued
as per Rules.
Valuation
Impact
Rules to be prescribed.
Existing provision
Medical
Proposed provision
Taxable.
Impact
Increase
treatment in specified hospitals not taxable. Payment of medical insurance premium not taxable. Reimbursement on medical treatment not taxable up to Rs. 15,000. Medical treatment abroad not taxable subject to certain conditions.
in
Taxable.
Taxable.
Taxable.
Existing provision
Tax
Proposed provision
Omitted.
Impact
Higher
on nonmonetary perquisites
tax
outgo.
Stock
Taxable
options/sweat equity
on allotment or transfer of shares as per prescribed valuation rules and then on sale as capital gain.
Taxable
on allotment or transfer of shares as per valuation rules to be prescribed and then on sale as capital gain.
No
change in provisions.
24
Existing Provision
Taxable
Proposed Provision
Taxable
Impact
Letting
as business income.
letting will be taxable as house property income even though in the nature of business.
Fixed
Existing Provision
Annual
Proposed Provision
Gross
Impact
New
base
realized and fair market value form the basis for determining annual value.
rent is the basis for taxation. Contractual rent and presumptive rent* form the basis for determining gross rent. *6% of (a) ratable value, or (b) cost of construction or acquisition, if no ratable value is fixed.
result in inconsistency where ratable value is not fixed. This may lead to fixation of rent which is higher than standard rent in case the ratable value is not fixed.
Existing Provision
Any
Proposed Provision
Also
Impact
Income,
of
includes building along with machinery, plant, furniture or any other facility, if letting of both is inseparable.
hitherto, taxed as income from other sources, shall now be taxed as house property income.
Fixed
Property
Annual
No
Tax
may be payable in respect of entire year even if property is owned for a part of the year.
Existing Provision
Deductible
Proposed Provision
No
Impact
Tax
rent
deduction provided.
Vacancy
Income
allowance
not included for period property is vacant for whole or part of the year.
Though
Tax
contractual rent factors in the vacancy, presumptive rent does not do so.
Existing Provision
30%
Proposed Provision
20%
Impact
Will
deduction
Deduction
of Gross Rent
specific provision
Specific
provision included.
Existing Provision
Allowed
Proposed Provision
No
Impact
Provision discriminatory in favor of multiple home owners. May result in sham let-out deals.
on
borrowed capital
Allowed
Allowed
Existing Provision
Allowable
Proposed Provision
Apparently
Impact
Such
in
not
5 installments.
allowed.
TAX INCENTIVES
32
Overall limit of Rs.300,000 per annum paid to any permitted savings intermediaries
Approved provident fund Approved superannuation fund Life insurance New Pension System (NPS)
Roll over or purchase of annuity plan will be tax free Employer contributions to PF, SAF to be included in the limit
33
Interest on education loan Health insurance premium, treatment of prescribed diseases, maintenance of a disabled dependent Deduction in respect of donations subject to various limits Deduction for rent paid by a self employed person
34
TAX INCENTIVES
Avenue
Life
Existing provision
Premium
Proposed provision
Premium
Impact
Objective
insurance
deductible u/s 80C upto Rs. 1 lakh (if premium does not exceed 20% of sum assured).
Sum
received (including bonus) is exempt if premium does not exceed 20% of sum assured.
Receipt
received (including bonus) is exempt if premium does not exceed 5% of sum assured and sum is received only on completion of contracted period or on death.
life insurance policies where premium exceeds 5% of the sum assured adversely impacted.
on death is exempt.
36
Requirement to deduct appears on payment or credit. Amount payable defined to include by credit to any account, whether called Suspense Account or by any other name No provisions to address dual employment / successive employment / split salary situations Loss from house property or any other income of the employee, if any, cannot be factored into the computation of tax to be deducted Lack of clarity on whether or not employer can factor in foreign tax credits to reduce tax to be deducted at source
37
WEALTH TAX
38
39
Thank You