Direct Taxes Code Bill, 2010 (DTC)
Personal Tax Submitted by:Rajiv Ranjan 10PT1-075 Rakesh Bhat 10PT1-076
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
Direct Tax Code, 2010
PHILOSOPHY & STRATEGY OF DTC
Direct Tax Code, 2010
Philosophy
PHILOSOPHY & STRATEGY
Use of simple language to ensure clarity.
Reduction in scope for litigation by avoiding ambiguity in provisions.
Use of flexible structure to accommodate changes in the growing economy without resorting to frequent amendments. Form based law - Incorporate a design which can be logically reproduced in a Form. Consolidate and rearrange various provisions to make them consistent with the general scheme of the Act.
Direct Tax Code, 2010
Strategy
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.
Direct Tax Code, 2010
PERSONAL TAX - Highlights
Rationalisation of tax rates by removal of surcharge and shift of slabs Due Date of filing of tax returns
30 June Non business non corporate tax payers
31 August All other tax payers No distinction between Capital Gains basis long term and short term Removal of many benefits currently exempt / taxed at lower rates - House Rent Allowance, LTC, Retirement benefits etc. Exempt Exempt Taxable (EET) to guide the philosophy of taxation of all savings
Overall limit of savings based deductions/tax incentives increased to Rs. 3
Lakhs.
Direct Tax Code, 2010
RATES OF TAX
Direct Tax Code, 2010
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
TAX SAVINGS (without considering the effect of HRA, LTA etc)
Proposed tax (Rs.) Nil 14,000 34,000 59,000 84,000 2,84,000 Savings (Rs.) 420 21,620 73,870 1,26,120 2,35,120 Savings (%) 3 39 56 60 45
Existing Rates Nil 10%
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
RATES OF TAX - Observations
No change in lowest slab (Rs.180,000)
Upward shift of slabs intended to neutralise impact of removal of many of the current exemptions and benefits Individuals on borderline, currently not paying taxes, may become tax payers due to removal of exemptions
Direct Tax Code, 2010 9
SCOPE OF TOTAL INCOME
Direct Tax Code, 2010
10
SCOPE OF TOTAL INCOME
No change in Scope of total income but no NOR:
In India
Income accrued / deemed to accrue Resident Non-Resident Income received
Outside India
Income accrued / deemed to accrue * Income received *
*Subject to exception in case of new residents (see next slide)
INCOME FROM EMPLOYMENT
Direct Tax Code, 2010
12
INCOME FROM EMPLOYMENT
Particulars Existing provision
Not
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
of economic employer recognized in statute.
INCOME FROM EMPLOYMENT
Particulars
Meaning
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
INCOME FROM EMPLOYMENT
Particulars Existing provision Proposed provision
Taxable
Impact
Commuted
Fully
pension & gratuity
exempt for Government employees. Partially exempt for other employees.
but tax may be deferred provided amount is deposited in a Retirement Benefit Account (RBA).
Withdrawals
Parity
of treatment between Government and nonGovernment employees.
Conforms
to EET principle.
from RBA will be taxed.
INCOME FROM EMPLOYMENT
Particulars Existing provision Proposed provision
Taxable
Impact
VRS
Conditionally
compensation exempt up to Rs. 5 lakh.
on deferred basis, as per guidelines to be prescribed, provided amount is deposited in RBA.
Withdrawals
Conforms
to EET principle.
from RBA will be taxed.
INCOME FROM EMPLOYMENT
Particulars
Leave
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
whether received during employment or on retirement or otherwise, for all employees.
of treatment between Government and nonGovernment employee. No relief or deferment of tax.
Retirement
Benefits Account (RBA)
Interest accrual in RBA not exempted.
INCOME FROM EMPLOYMENT
Particulars
Transport
Existing provision
Exempt
Proposed provision
Deductible
Impact
To
up to 800
allowance
p.m.
up to certain limits (Rs 3200 to be prescribed).
be analyzed once limits are prescribed .
Will
HRA
Exempt
(subject to certain limits).
Prima
facie
taxable.
increase tax base. .
INCOME FROM EMPLOYMENT
Particulars
Special allowances u/s 10(14)
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
increase taxable salary
Deductible
as prescribed to the extent actually incurred. Impact will be clear once rules are prescribed.
Only
Allowances
transport allowance deductible to the extent prescribed
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
INCOME FROM EMPLOYMENT
Particulars
Accommodation
Existing provision
Valued
Proposed provision
Valuation
Impact
Parity
as per Rules. Preferential treatment for Government employees.
Rules to be prescribed. Expected to cover both company leased and HRA.
of treatment between Government and non-Government employee. Impact can be ascertained once Rules are prescribed. HRA stands withdrawn while accommodation continues.
INCOME FROM EMPLOYMENT
Particulars
LTC
Existing provision
Exempt
Proposed provision
Taxable.
Impact
Will
(subject to limits).
increase taxable salary.
Motor
car; domestic
Valued
servant, gas/electricity/water; educational facilities; transport facility
as per Rules.
Valuation
Impact
Rules to be prescribed.
can be ascertained once Rules are prescribed.
INCOME FROM EMPLOYMENT
Particulars
Medical
Existing provision
Medical
Proposed provision
Taxable.
Impact
Increase
facilities and reimbursements
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 salary as Employer funded medical benefits become taxable.
Taxable.
Taxable.
INCOME FROM EMPLOYMENT
Particulars
Tax
Existing provision
Tax
Proposed provision
Omitted.
Impact
Higher
on nonmonetary perquisites
on non monetary perquisites not subject to grossing up under section 10(10CC).
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.
INCOME FROM HOUSE PROPERTY
Direct Tax Code, 2010
24
INCOME FROM HOUSE PROPERTY
Particulars
Income
Existing Provision
Taxable
Proposed Provision
Taxable
Impact
Letting
from business of letting
as business income.
as house property income (except hotel, convention centre or cold storage).
out of commercial complexes, theatres, etc. may be taxed on presumptive basis.
Commercial
letting will be taxable as house property income even though in the nature of business.
Fixed
deductions as against actual expenses and depreciation.
INCOME FROM HOUSE PROPERTY
Particulars
Tax
Existing Provision
Annual
Proposed Provision
Gross
Impact
New
base
value is the basis for taxation.
Rent
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.
concept of presumptive rent introduced.
May
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.
INCOME FROM HOUSE PROPERTY
Particulars
Definition
Existing Provision
Any
Proposed Provision
Also
Impact
Income,
of
house property income expanded
buildings or lands appurtenant thereto.
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
deductions will be available as against actual expenses.
Property
Annual
acquired during the year
value is considered for the proportionate period.
No
provision to apportion presumptive rent.
Tax
may be payable in respect of entire year even if property is owned for a part of the year.
INCOME FROM HOUSE PROPERTY
Particulars
Unrealised
Existing Provision
Deductible
Proposed Provision
No
Impact
Tax
rent
while computing annual value.
deduction provided.
may be payable on unrealised rent.
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.
may be payable even though no income is earned.
INCOME FROM HOUSE PROPERTY
Particulars
Standard
Existing Provision
30%
Proposed Provision
20%
Impact
Will
deduction
Deduction
of Gross Annual Value
No
of Gross Rent
increase taxable income.
Tax
for tax on services
specific provision
Specific
provision included.
on services will be deductible.
INCOME FROM HOUSE PROPERTY
Particulars
Interest
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
upto Rs. 150,000 for self occupied property.
deduction available for self occupied property.
Allowed
without limit for let-out properties.
Allowed
without limit for let-out property.
May discourage investment in property by lower and middle income taxpayers.
INCOME FROM HOUSE PROPERTY
Particulars
Deduction
Existing Provision
Allowable
Proposed Provision
Apparently
Impact
Such
in
not
for interest paid on loan during the preconstruction or preacquisition period
5 installments.
allowed.
interest may be sunk cost.
TAX INCENTIVES
Direct Tax Code, 2010
32
TAX INCENTIVES Savings Based Deductions
All savings instruments transitioned to EET basis
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
Direct Tax Code, 2010
33
TAX INCENTIVES- Other Deductions
Tuition fees for children
For maximum of two children Educational institution should be situated within India Covered under the overall limit of Rs 300,000 per annum for savings instruments
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
Direct Tax Code, 2010
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
deductible within the overall tax incentive limit of Rs. 3 lakh.
Sum
appears to limit EEE benefit to pure life insurance policies.
Existing
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.
TAX DEDUCTION AT SOURCE (TDS)
Direct Tax Code, 2010
36
Liability to deduct tax at source is on the employer
TAX DEDUCTION AT SOURCE - Salaries
Residents at average rate of tax Non Residents flat rate of 35% as per Fourth Schedule as applicable on residuary income
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
Direct Tax Code, 2010
37
WEALTH TAX
Direct Tax Code, 2010
38
WEALTH TAX - Highlights
Threshold limit increased from Rs 30 lakhs to Rs 50 Lakhs Rate of tax reduced from 1% to 0.25% No special exemptions for returning non-resident Indians (earlier provisions exempted the money and assets brought into India for a period of 7 years after the return of the individual into India) Private discretionary trusts covered Valuation Rules to be prescribed
Direct Tax Code, 2010
39
Thank You
