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Direct Tax Code. INTRODUCTION. Income Tax Act (IT Act) came into legislation in 1961. This Act has been criticized for being economically inefficient, incompatible with the current requirements and inequitable to all tax payers.
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INTRODUCTION Income Tax Act (IT Act) came into legislation in 1961. This Act has been criticized for being economically inefficient, incompatible with the current requirements and inequitable to all tax payers. So, in August 2009, the Ministry of Finance came out with the draft of Direct Tax Code (DTC) bill with the purpose of replacing the existing IT Act and also invited the public for discussions and feedback on the draft proposal.
It will be a key tax reform by the government aiming at widening and deepening the tax net; and increasing tax revenue. But the draft bill had received lot of criticisms on certain amendments or changes in relation to the removal of existing tax subsidies, and modifications in the tax rate structure that it sought to introduce. So, in June 2010, the ministry again issued a new revised direct tax code bill, incorporating all the criticisms, and presented the draft to the Union Cabinet. As per the news reports, on 31st August 2010, the draft bill has been approved by the Cabinet as well as the Parliament and the new DTC will come into force from 1st April 2012.
Need for new direct tax code The rationale for introducing DTC is to increase the efficiency and equity of the tax system by eliminating the plethora of tax exemptions or subsidies that create distortions. Its major policies include reduction in the tax rates to bring more people and companies under the tax net. India wants to modernize its direct tax laws, mainly its income tax act which is now nearly 50 years old. The government, wants a modern tax code in step with the needs of an economy which is now the third largest in Asia. The new tax code is expected to widen the tax base, end unnecessary exemptions, moderate tax rates and add to the government's funds.
Income tax slab The basic tax exemption limit for an individual male and female has been raised and brought at par from Rs 1,60,000 and Rs 1,90,000 to Rs 2,00,000 per annum. Senior citizens, however, will now enjoy a tax exemption on income up to Rs 2,50,000 per annum instead of Rs 240,000 allowed now.
Savings, in the form of provident funds whether public provident fund, government provident fund, or employees provident fund The new DTC savings limit allowed for deduction from the taxable income has been increased DTC SAVING LIMIT
DTC in case of Retirement Retirement is the stage of life after working.
DTC in case of Medical Reimbursement Medical reimbursement means compensation claim in case of any medical treatment or claim in case of money spent on any medical services. Tax practitioners said that the move will help salaried individuals meet the cost of some of the surgeries since the present limit was low and was mostly used up by consultation fees and cost of medicines.
CAPITAL GAINS • Transfer of capital assets results in capital gains. A capital gains tax is the tax levied on the profit released upon the sale of a capital asset. According to I.T. Act, 1961 as property of any kind held by an assessee such as real estate, equity shares, bonds, jewellery, paintings, art etc. are capital assets. • For tax purposes, there are two types of capital assets: • Long term: Long term asset are held by a person for 3 years except in case of shares or mutual funds which becomes long term just after one year of holding. • Short term: Short term asset are held by a person for not more than 3 years and in case of shares period has been reduced to 12 months.
DTC in case of Dividends Dividends are payments made by a company to its shareholder members. When a corporation earns a profits or surplus, that money can be put to two uses: it can either be re-invested in the business called retained earnings, or it can be paid to the shareholders as a dividend.
DTC in case of LTA Leave Travel Allowance (LTA) is basically defined as the cost of travel granted to employees to travel anywhere in India, while on leave from work. The amount of exemption depends upon the mode of travel, and it is allowed only towards the travel fare, and not for boarding and lodging.
DTC for NRI A Non-Resident Indian is an Indian citizen who has migrated to another country, a person of Indian origin who is born outside India , or a person of Indian origin who resides permanently outside India. It also refers to a person of Indian origin staying in a different global location for employment, carrying on business or vocation.
DTC in case of Corporate tax Corporate tax refers to direct taxes charged by various jurisdictions on the profits made by companies or associations and include capital gains of the company.
DTC in case of MAT MAT means Minimum Alternative Tax charged u/s 115J(B) to the companies. It was first introduced by V.P. Singh when he was the Finance Minister of our country. He realized that companies declaring huge dividend and paying lesser tax as they claim a plethora of exemptions. To avoid such things he introduced MAT which is charged @ 19.93% on the book profit declared by the company.
DTC in case of SEZ zone A Special Economic Zone (SEZ) is a geographical region that has economic laws that are more liberal than a country's typical economic laws. India was one of the first in Asia to recognize the effectiveness of the Export Processing Zone (EPZ) model in promoting exports, with Asia's first EPZ set up in Kandla in 1965. With a view to overcome the shortcomings experienced on account of the multiplicity of controls and clearances; absence of world-class infrastructure, and an unstable fiscal regime and with a view to attract larger foreign investments in India, the Special Economic Zones Policy was announced in April 2000. Usually the goal of a these Zones is to increase foreign direct investments by foreign investors, typically an international business or a multinational corporation (MNC). The main objectives of the SEZ Act are: (a) generation of additional economic activity. (b) promotion of exports of goods and services. (c) promotion of investment from domestic and foreign sources. (d) creationof employment opportunities. (e) development of infrastructure facilities.
Dtc in case of education cess MEANING-: To give a boost to primary education in the country and in conformity with the Common Minimum Programme of the UPA government, Finance Minister P.Chidambaram on July 2004 proposed to levy a Educationcess of two per cent on income tax, corporation tax, excise and customs duties and service tax. The new cess was expected to yield about Rs 4,000-5,000 crore (Rs 40-50 billion) per annum and the entire amount will be earmarked for education including provision of nutritious cooked mid-day meal. The education cess will be a 3 per cent surcharge on the total payable tax, and not 3 per cent of total income. SURCHARGE AND EDUCATION CESS ARE ABOLISHED.
New DTC removes most of the categories of exempted income. ULIPs, Term deposits, NSC , house loan, principal repayment, stamp duty and registration fees on purchase of house property will loose tax benefits. • Surcharge and education cess are abolished and Tax exemption on LTA (leave travel allowance) is abolished.
Terms Abolished under new DTC • Earlier Income Tax Act and Wealth tax Act (Covering Income Tax, TDS, DDT, FBT and Wealth taxes) are abolished and single code of Tax, DTC in place. • Concept of Assessment year and previous year is abolished. Only the “Financial Year” terminology exists. • Only status of “Non Resident” and “Resident of India” exits. The other status of “resident but not ordinarily resident” goes away. .
