Paper Presentation on DIRECT TAX CODE BILL 2009

1. Paper Presentation on DIRECT TAX CODEBILL 2009 By CA. Vijay R Kalani M.Com, ACA, LCS, ICWAI (FNL)

2. DIRECT TAX CODE BILL, 2009 qThe Direct Tax Code (‘DTC’) 2009 is to come into force on 1 April, 2011, if enacted qThe 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 qEvery 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) qIncome has been proposed to be classified into two broad groups: Income from Ordinary Sources and income from Special Sources CA. Vijay R Kalani, Nanded

3. DIRECT TAX CODE BILL, 2009 qIncome 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 or carry 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. CA. Vijay R Kalani, Nanded

4. DIRECT TAX CODE BILL, 2009 General Rules • Total income of the tax payer to be the aggregate of Income from Ordinary 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 in the 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 allowed CA. Vijay R Kalani, Nanded

5. DIRECT TAX CODE BILL, 2009 Rules 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 at 6% 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. CA. Vijay R Kalani, Nanded

6. DIRECT TAX CODE BILL, 2009 Income 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 of repayment 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 allowed CA. Vijay R Kalani, Nanded

7. DIRECT TAX CODE BILL, 2009 Income from business • Every business to constitute a separate source for the purpose of computation 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 an undertaking 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

8. DIRECT TAX CODE BILL, 2009 Income 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. CA. Vijay R Kalani, Nanded

9. DIRECT TAX CODE BILL, 2009 Income from capital gains • Definition of capital assets have been modified and replaced with the 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 long term 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 transferred irrespective of the year of receipt of consideration, except in the case of compulsory acquisition 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 April 1981 to 1 April 2000. CA. Vijay R Kalani, Nanded

10. DIRECT TAX CODE BILL, 2009 Income 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 capital gains 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

11. DIRECT TAX CODE BILL, 2009 CA. Vijay R Kalani, Nanded

12. DIRECT TAX CODE BILL, 2009 Exempt-Exempt-Tax (EET) regime for savings scheme • All long-term retrial savings schemes are proposed to be moved to the EET regime • Contributions (both by employee and employer) of up 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 tuition fees paid proposed to be increased from Rs 1 lakh to Rs 3 lakhs • No further investments eligible. CA. Vijay R Kalani, Nanded

13. DIRECT TAX CODE BILL, 2009 Maintenance of Records • Section 83 under New Tax Code provides for Maintenance of records. • Currently section 44AA under Income Tax Act,1961 deals with maintenance of 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 is likely 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. CA. Vijay R Kalani, Nanded

14. 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 the value 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 expenditure exceeds 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. CA. Vijay R Kalani, Nanded

15. DIRECT TAX CODE BILL, 2009 Minimum Alternate Tax (MAT) • Currently under section 115JB of the Income Tax Act,1962 a company is required to pay a Minimum Alternate Tax of 15% of the book profits if the actual tax liability is less than such MAT. Such excess tax paid in a particular year is available as a credit in future years • In many countries minimum tax is payable on the value of the assets instead of the book profit concept. Under the New Tax Code it has been proposed that minimum Alternate Tax should be calculated on the basis of “Value of gross assets”. • Section 97 of the New Tax Code defines term “ Value of gross assets” according to which “Value of gross assets” will be value of gross block of fixed assets of the company , the value of capital work in progress of the company, the book value of all the other assets of company, as on the last day of the relevant financial year as reduced by the accumulated depreciation on the value of the gross block of the fixed assets and the debit balance of the profit and loss account if included in the book value of other assets. CA. Vijay R Kalani, Nanded

16. DIRECT TAX CODE BILL, 2009 Wealth Tax • Individuals, HUF and Private Discretionary Trusts are liable to wealth tax • Wealth to be taxable at 0.25 percent of 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. CA. Vijay R Kalani, Nanded

17. DIRECT TAX CODE BILL, 2009 Return of Income and Assessment • The due date for filing the return of income for non-corporate taxpayers 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 each return 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 scrutiny will 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 Central Board 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 passed CA. Vijay R Kalani, Nanded

18. DIRECT TAX CODE BILL, 2009 Return of Income and Assessment • Assessment to be generally completed within 21 months from the end 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 CA. Vijay R Kalani, Nanded

19. With Thanks & Regards CA. Vijay R Kalani Vijay R Kalani & Co. Chartered Accountants “Sevasadan”, New Mondha, Maganpura, Nanded – 431602 E-mail : cavijaykalani@gmail.com Mobile : 94232 13129, Phone : 02462 – 222775