The revised Discussion Paper on Direct Tax Code has been issued for public discussion and response is solicited upto June 30, 2010. The proposals in short are:-
i) MAT: MAT will be calculated with reference to ‘book profit’ and not on the basis of ‘value of gross assets’.
ii) EET :EET will not include Government Provident Fund (GPF), PPF, Recognised Provided Funds, Pension Scheme administered by Pension Fund Regulatory and Development Authority as well as approved pure life insurance products and annuity scheme. These will be governed by EEE.
A) The following amounts shall not be included in ‘Salary’ subject to specified limits.
a) An employer’s contribution to an approved provident fund, Super Annuation Fund and New Pension Scheme.
b) Retirement Benefits
e) Commutation of Pension linked to gratuity and
f) Encashment of leave on superannuation.
B) Medical facilities / reimbursement provided by an employer to employees be valued as per existing law.
C) Perquisite value of rent free accommodation shall not be on market value.
iv) Income From House Property
a) SA Property shall be valued at Rs. NIL. However, interest upto Rs. 1.5 lakh on borrowed capital will be allowed.
b) In case of let out property, gross rent will be the amount of rent received or receivable.
c) Gross rent will not be computed at a presumptive rate of 6% of rateable value or cost of construction / acquisition.
v) Capital Gains
a) Income under the head ‘Capital Gains’ will be considered as Income from ordinary sources in case of all tax payers including non-residents. It will be taxed at the rate applicable to that tax payers.
b) Capital Asset held for a period of more than one year from the end of the financial year in which asset is acquired.
A) Listed equity shares or units of an equity oriented fund, capital gains shall be computed after allowing a deduction at a specified percentage of capital gains without any indexation. Similarly, loss arising on transfer of such asset will be scaled down in a similar manner.
B) Other assets:-
i) Base date is shifted to April 01, 2000 instead of April 01, 1981.
ii) The capital gains on such assets shall be computed after allowing indexation on this raised base.
c) Income arising on purchase and sale of securities by an FII shall be deemed to be income chargeable under the head ‘capital gains’. No TDS on such income, however, they will have to pay advance tax.
vi) Non-Profit Organisation (NPO)
a) NPO registered under the Income-tax Act, 1961 would not be required to apply for fresh registration under the DTC.
b) NPO may not able to spend the entire receipts during the financial year itself, may be allowed to carry forward upto 15% of the surplus or 10% of gross receipts, whichever is higher, to be used within three years from the end of the relevant financial year.
c) A basic exemption limit will be provided and the surplus in excess of such limit will be subject to tax.
d) The phrase ‘charitable purpose’ will be retained in place of ‘permitted welfare activity’.
e) It is proposed to retain the cash system of accounting.
f) The Central Government shall be empowered to notify any non-profit organization of public importance as an exempt entity.
g) The income of a public religious institution shall be exempt subject to fulfillment of certain conditions. Donation to these institutions will not be eligible for any deduction in the hands of donor.
h) Partly religious and partly charitable institutions will be treated as NPO if they are registered under this code. Their income from public religious activity will be exempt subject to the fulfillment of certain conditions.
vii) SEZ – Taxation of existing unit
As a policy, it has been decided not to extend the scope or the period of profit linked deductions. However, specific provisions for protecting such deduction for the unexpired period have been provided in DTC in case of SEZ developers. Similar provision to protect profit linked deductions of units already operating in SEZ shall be incorporated.
viii)Concept of residence in the case of a company incorporated outside India
a) Foreign company will be treated as resident in India , if its ‘place of effective management’ is situated in India .
ix) DTAA vs. DTC
a) Between the domestic law and relevant DTAA, whichever is more beneficial to the tax payer shall apply. However, DTAA will not have preferential status over the domestic law in the following circumstances: –
– When GAAR is invoked,
– When CFC provisions are invoked, or
– When Branch Profit tax is levied.
x) Wealth Tax
Specified ‘unproductive assets’ will be subject to Wealth Tax. It will be payable by all tax payers except non-profit organizations.
The provisions would apply, if any one of the following conditions is met:-
a) It is not at arms length,
b) It represents misuse or abuse of the provisions of the code,
c) It lacks commercial substance,
d) It is entered or carried on in a manner not normally employed for bonafide business purposes.
The forum of DRP would be available where GAAR provisions are invoked.