Direct Taxes Code Bill, Direct Taxes Code Bill, 20092009(DTC)(DTC)

PART IPART I

1717thth September September 2009,Thursday2009,Thursday

Aparna GurjalAparna Gurjal

SynopsisSynopsis

IntroductionIntroduction Rates of Tax Rates of Tax New DefinitionsNew Definitions ResidenceResidence Income deemed to accrue in IndiaIncome deemed to accrue in India Scope of Total IncomeScope of Total Income Tax Deduction at SourceTax Deduction at Source Branch Profit TaxBranch Profit Tax

IntroductionIntroduction Para 1.7 of the Discussion PaperPara 1.7 of the Discussion Paper

DTC is not an attempt to amend I.T. ActDTC is not an attempt to amend I.T. Act Not an attempt to improve upon I.T. ActNot an attempt to improve upon I.T. Act CBDT has started with a clean drafting stageCBDT has started with a clean drafting stage Some assumptions held ground for many years discardedSome assumptions held ground for many years discarded Best practices in the world incorporatedBest practices in the world incorporated Policies to promote growth with equityPolicies to promote growth with equity Read the DTC without preconceived notionRead the DTC without preconceived notion Do not compare with the presentDo not compare with the present

The Direct Tax Code (‘DTC’) 2011 is to come into force w.e..f 1April,2011,if enacted

Time space is given for thread bare discussion to crystalise clear view No two concepts of “Assessment year” and “Previous Year” – Only

“Financial Year” The code has attempted to define anything and everything, as The code has attempted to define anything and everything, as

many as “318” definitions have been introducedmany as “318” definitions have been introduced Even Term “However” has been defined !!Even Term “However” has been defined !!

Introduction (Contd)…Introduction (Contd)…

Sec 283Sec 283“total income” “total income” of a financial year means the of a financial year means the total income computed under section 71 for that total income computed under section 71 for that financial yearfinancial year

Number of judicial pronouncements which were held in Number of judicial pronouncements which were held in favour of the Assesee, favour of the Assesee, have been attempted to be have been attempted to be over ruledover ruled by bringing in specific provisions of law by bringing in specific provisions of law

Definition of person has been broadened to include even Definition of person has been broadened to include even “Government”“Government”

Income Tax officer defined to include even transfer Income Tax officer defined to include even transfer pricing officerpricing officer

It appears that the DTC does not contain any provisions with respect to the Settlement Commission

Securities Transaction Tax is proposed to be abolished

Rates of Taxes in glimpseRates of Taxes in glimpseRate Rate of of TaxeTaxess

Existing Existing Slabs Slabs (Rs.)*(Rs.)*

Revised Revised Slabs (Rs)Slabs (Rs)

NILNIL 0-160,000*0-160,000* 0-160,000*0-160,000*

10%10% 1,60,010 – 1,60,010 – 3,00,0003,00,000

1,60,100 – 1,60,100 – 10,00,00010,00,000

20%20% 3,00,010 – 3,00,010 – 5,00,0005,00,000

10,00,100 – 10,00,100 – 25,00,00025,00,000

30%30% 5,00,010 & 5,00,010 & aboveabove

25,00,100 & 25,00,100 & aboveabove

** Substantial increase in income tax slabs for individualsSubstantial increase in income tax slabs for individuals No surcharge or Education CessNo surcharge or Education Cess

Rates of Taxes (Contd) Rates of Taxes (Contd) …..….. Partnership Firms & other unincorporated bodies – Partnership Firms & other unincorporated bodies –

Income Tax at flat rate of 30%Income Tax at flat rate of 30% No change in tax rates of co-operative societiesNo change in tax rates of co-operative societies Companies tax rate reduced to 25% from 30% - No Companies tax rate reduced to 25% from 30% - No

surcharge or Education Cesssurcharge or Education Cess Capital Gains chargeable to tax at higher ratesCapital Gains chargeable to tax at higher rates

Residents at normal rates – Individual at slab rates, Residents at normal rates – Individual at slab rates, unincorporated bodies at 30%, Companies at 25%, NPOs at 15%unincorporated bodies at 30%, Companies at 25%, NPOs at 15%

Non-residents at 30%Non-residents at 30% Tax rates for non-residents (including foreign Tax rates for non-residents (including foreign

companies)– Special Sources at flat ratescompanies)– Special Sources at flat rates Interest (whether in foreign currency or rupees) Interest (whether in foreign currency or rupees)

20%20% Dividends not subject to Dividend Distribution Tax 20%Dividends not subject to Dividend Distribution Tax 20% Capital Gains 30%Capital Gains 30% Other investment income 20%Other investment income 20% Royalties & Fees for Technical Services 20%Royalties & Fees for Technical Services 20%

Rates of Taxes (Contd) …Rates of Taxes (Contd) … Foreign companies tax rate reduced to 25%Foreign companies tax rate reduced to 25% Foreign Companies also liable to Branch Profits Tax of Foreign Companies also liable to Branch Profits Tax of

15% on income as reduced by income tax – effectively 15% on income as reduced by income tax – effectively total tax of 36.25%total tax of 36.25%

MAT rate 0.25% of gross assets for Banks, 2% of gross MAT rate 0.25% of gross assets for Banks, 2% of gross assets for othersassets for others

Dividend Distribution Tax Rate unchanged at 15% -Dividend Distribution Tax Rate unchanged at 15% - Payable only by Resident companies and not by Mutual FundsPayable only by Resident companies and not by Mutual Funds Exemption for SEZ Developers/Units no longer availableExemption for SEZ Developers/Units no longer available Set off for subsidiary dividend received continuesSet off for subsidiary dividend received continues No Dividend Distribution Tax on dividend paid to pass-thru No Dividend Distribution Tax on dividend paid to pass-thru

entityentity Wealth Tax rates substantially reduced – 0.25% on Wealth Tax rates substantially reduced – 0.25% on

wealth exceeding Rs.50 crores in case of individual, wealth exceeding Rs.50 crores in case of individual, HUF & Private Discretionary TrustHUF & Private Discretionary Trust

Wealth tax liability to be discharged by payment of Wealth tax liability to be discharged by payment of prepaid taxes.prepaid taxes.

New (Amended) Definitions New (Amended) Definitions [ Changes only ][ Changes only ]

RoyaltyRoyalty ITA 9(1)(vi) : secret formula or processITA 9(1)(vi) : secret formula or process DTC 284(24D)(b) : secret formula, processDTC 284(24D)(b) : secret formula, process Use of CS equipment – “including ship or Use of CS equipment – “including ship or

aircraft”aircraft” Use or right to use of “transmission by Use or right to use of “transmission by

satellite, cable, optic fiber or similar satellite, cable, optic fiber or similar technology”technology”

Transfer of all or any right (including grant of Transfer of all or any right (including grant of licenses) in respect of “live coverage of any licenses) in respect of “live coverage of any event”event”

New (Amended) Definitions New (Amended) Definitions [ Changes only ] (contd) …[ Changes only ] (contd) …

Fees for Technical Services (FTS)Fees for Technical Services (FTS) consideration paid/payable “directly or indirectly” consideration paid/payable “directly or indirectly”

for ……for …… scope expanded to include development and scope expanded to include development and

transfer of design, drawings, plan or software or transfer of design, drawings, plan or software or any other service of similar natureany other service of similar nature

““development and transfer”development and transfer” mere development covered in general definitionmere development covered in general definition mere transfer – not FTSmere transfer – not FTS pith and substance – “service” and not “supply”pith and substance – “service” and not “supply”

New (Amended) Definitions New (Amended) Definitions [ Changes only ] (contd) ….[ Changes only ] (contd) ….

Interest means:Interest means: any “amount” payableany “amount” payable to any personto any person in any mannerin any manner in respect ofin respect of any borrowings or debt incurredany borrowings or debt incurred or any other similar right or obligationor any other similar right or obligation

New (Amended) Definitions New (Amended) Definitions [ Changes only ] (contd) ….[ Changes only ] (contd) ….

Interest Issues ??Interest Issues ?? ‘‘Arrangers’ feesArrangers’ fees ‘‘Upfront fees’Upfront fees’ ‘‘Commitment charges’Commitment charges’ ‘‘Penalty for late payment’Penalty for late payment’

ResidenceResidence

Individual- Concept of “Resident and Individual- Concept of “Resident and not ordinarily” done awaynot ordinarily” done away Exemption for foreign sourced income Exemption for foreign sourced income

for two yearsfor two years Indian Company- ResidentIndian Company- Resident Foreign Company Foreign Company

its place of control and management, at its place of control and management, at any time in the year, is situated any time in the year, is situated wholly, wholly, or partly, in Indiaor partly, in India

Income deemed to accrue in Income deemed to accrue in IndiaIndia

ITA 9(1)(i) V/s DTC 5(1)(d)ITA 9(1)(i) V/s DTC 5(1)(d) Income shall be deemed to accrue in India, if it Income shall be deemed to accrue in India, if it

accrues, directly or indirectly, through or from :accrues, directly or indirectly, through or from : ““the transfer, directly or indirectly, of capital asset the transfer, directly or indirectly, of capital asset

situated in India”.situated in India”. Besides salaries, dividend, interest, royalty Besides salaries, dividend, interest, royalty

and FTS - “transportation charges” also and FTS - “transportation charges” also included.included. TC accrued from Govt.TC accrued from Govt. TC accrued from Resident - exception: TC accrued from Resident - exception:

Transport from a place o/s India to another Transport from a place o/s India to another place o/s Indiaplace o/s India

TC accrued from Non-Resident, if - Transport to TC accrued from Non-Resident, if - Transport to or from a place in Indiaor from a place in India

Scope of Total IncomeScope of Total Income

ResidentResident World income taxableWorld income taxable Income accruing/received outside India Income accruing/received outside India

shall be included in TI, regardless of :shall be included in TI, regardless of : Income having been charged to tax Income having been charged to tax

outside India; oroutside India; or Method of granting relief for double Method of granting relief for double

taxation under DTAAtaxation under DTAA

Scope of Total Income (Contd) Scope of Total Income (Contd) ……

Non-ResidentNon-Resident Accrues in IndiaAccrues in India Deemed accrual in IndiaDeemed accrual in India Received in IndiaReceived in India Deemed received in IndiaDeemed received in India

Tax Deduction at Source - Tax Deduction at Source - GeneralGeneral Third Schedule deals with types of payments & Third Schedule deals with types of payments &

rates for payments to residents, Fourth rates for payments to residents, Fourth Schedule deals with payments to Non-residentsSchedule deals with payments to Non-residents

If PAN not furnished - schedule rate or If PAN not furnished - schedule rate or 20%,whichever is higher- A sort of discipline to 20%,whichever is higher- A sort of discipline to acquire PAN acquire PAN

Point of time of deduction – on settlement of Point of time of deduction – on settlement of amount payable in cash, by issue of amount payable in cash, by issue of cheque/draft, by credit to any account cheque/draft, by credit to any account (suspense or other) or by any other prescribed (suspense or other) or by any other prescribed modemode

No exemption for payments for personal No exemption for payments for personal purposes of the payer – Payments to Doctors, purposes of the payer – Payments to Doctors, Payments to Contractors, etc.Payments to Contractors, etc.

Tax Deduction at Source – Tax Deduction at Source – GeneralGeneralContd ….Contd …. No exemption for payments to GovernmentNo exemption for payments to Government

No provision for exemption on self declaration – No provision for exemption on self declaration – Form 15G, 15H, etc. – difficulty for Senior CitizensForm 15G, 15H, etc. – difficulty for Senior Citizens

Deductee can make application to AO for certificate Deductee can make application to AO for certificate of no deduction – No provision for certificate of of no deduction – No provision for certificate of deduction at lower ratededuction at lower rate

Deductor can make application to AO for certificate Deductor can make application to AO for certificate of no deduction from payments to Non-residents - of no deduction from payments to Non-residents - No certificate of deduction at lower rateNo certificate of deduction at lower rate

Time for payment, format of TDS certificate, Time for payment, format of TDS certificate, periodicity and due dates of returns, format of periodicity and due dates of returns, format of returns etc. to be prescribed by CBDTreturns etc. to be prescribed by CBDT

Amount not deductible in computation where tax is not deducted at source

Tax Deduction at Source - Tax Deduction at Source - SalariesSalaries

Required to be deducted by all Required to be deducted by all personspersons

At average rate of income taxAt average rate of income tax TDS on salary also on settlement on TDS on salary also on settlement on

credit, credit, not only on paymentnot only on payment – –Difficulty in respect of commission Difficulty in respect of commission to directors based on profitsto directors based on profits A departure from the present A departure from the present

position !!!position !!! No provision for declaration by No provision for declaration by

employee of other salary employee of other salary received/salary received from received/salary received from previous employer during the year – previous employer during the year – Whether is it a slip or a considered Whether is it a slip or a considered decision ??decision ??

Clarity required for deductions for Clarity required for deductions for savings u/s.66 ?savings u/s.66 ?

Salary to Non-resident employees - Salary to Non-resident employees - covered by Fourth Schedulecovered by Fourth Schedule

Tax Deduction at Source - Tax Deduction at Source - InterestInterest No distinction between interest on No distinction between interest on

securities and other interestsecurities and other interest Similar exemptions as currently available, Similar exemptions as currently available,

except with minor modificationsexcept with minor modifications No TDS on 8% Savings (Taxable) Bonds, No TDS on 8% Savings (Taxable) Bonds,

2003 as exception to Government Security 2003 as exception to Government Security not providednot provided

Exemption for interest payable to banks Exemption for interest payable to banks (including Co-operative Banks), Financial (including Co-operative Banks), Financial Corporations, Insurance Companies, Corporations, Insurance Companies, Mutual Funds and other notified Mutual Funds and other notified Institutions, Associations, or BodiesInstitutions, Associations, or Bodies

Tax Deduction at Source – Tax Deduction at Source – InterestInterest

(Contd) ….(Contd) …. No exemption from TDS on interest No exemption from TDS on interest

exceeding Rs.10,000 paid by a co-exceeding Rs.10,000 paid by a co-operative bank to its members on time operative bank to its members on time depositsdeposits

No exemption for TDS on interest No exemption for TDS on interest payments by co-operative bank/society payments by co-operative bank/society to cooperative societyto cooperative society

Fortunately exemption for interest on Fortunately exemption for interest on income tax refunds !!income tax refunds !!

Tax Deduction at SourceTax Deduction at Source-Payments to Contractors-Payments to Contractors No distinction between payments to No distinction between payments to

individual/HUF and others – common rate of individual/HUF and others – common rate of 1%1%

TDS deductible on works contract, service TDS deductible on works contract, service contract, broadcasting & telecasting, supply contract, broadcasting & telecasting, supply of labour for works or service contract, of labour for works or service contract, advertising, carriage of goods and passengers advertising, carriage of goods and passengers by transport other than railwaysby transport other than railways

Service contract – includes contract for job Service contract – includes contract for job work – no specific exemption for manufacture work – no specific exemption for manufacture of goods by customer specification where of goods by customer specification where material not supplied by customermaterial not supplied by customer

Catering not specifically covered – whether Catering not specifically covered – whether service contract ?service contract ?

Tax Deduction at SourceTax Deduction at Source-Payments to Contractors -Payments to Contractors (Contd) ….(Contd) …. Service contract – broad scopeService contract – broad scope Definition of service – clause 252 of S.284 – Definition of service – clause 252 of S.284 –

service of any description to potential users service of any description to potential users including in connection with business of any including in connection with business of any industrial or commercial nature, such as industrial or commercial nature, such as accounting, banking, merchant banking, accounting, banking, merchant banking, communication, conveying of news or communication, conveying of news or information, advertising, entertainment, information, advertising, entertainment, amusement, education, financing, insurance, amusement, education, financing, insurance, chit funds, real estate, construction, transport, chit funds, real estate, construction, transport, storage, processing, supply of electrical or storage, processing, supply of electrical or other energy, boarding and lodgingother energy, boarding and lodging

Tax Deduction at SourceTax Deduction at Source- Commission or Brokerage- Commission or Brokerage Combined rate for insurance, sale of lottery Combined rate for insurance, sale of lottery

tickets as well as other commission of 10%tickets as well as other commission of 10% Brokerage or commission not definedBrokerage or commission not defined To include remuneration or prizeTo include remuneration or prize For rendering any servicesFor rendering any services No exemption for brokerage in relation to No exemption for brokerage in relation to

securities transactionssecurities transactions Exemption limit increased to aggregate of Exemption limit increased to aggregate of

Rs.5,000Rs.5,000

Tax Deduction at Source- Tax Deduction at Source- RentRent Limit of Rs.1,20,000 unchangedLimit of Rs.1,20,000 unchanged Rate reduced to 1% for use of Rate reduced to 1% for use of

machinery, plant or equipmentmachinery, plant or equipment Definition of rent under clause 235 of Definition of rent under clause 235 of

s.284 – in relation to house property, s.284 – in relation to house property, any income derived directly or any income derived directly or indirectly from letting of the propertyindirectly from letting of the property

No definition of rent for movable No definition of rent for movable propertyproperty

Tax Deduction at Source - Fees for Tax Deduction at Source - Fees for Professional or TechnicalProfessional or TechnicalServices, RoyaltyServices, Royalty

No exemption limit – tax deductible even on payment No exemption limit – tax deductible even on payment of Rs.100of Rs.100

No definition of profession or professional servicesNo definition of profession or professional services Fees for technical services defined under clause 105 of Fees for technical services defined under clause 105 of

s.284s.284 Royalty defined under clause 240 of s.284 –Royalty defined under clause 240 of s.284 –

Includes consideration for the use or right to use of Includes consideration for the use or right to use of transmission by satellite, cable, optic fiber or similar transmission by satellite, cable, optic fiber or similar technologytechnology

Includes transfer of all or any rights (including grant of licence) Includes transfer of all or any rights (including grant of licence) in respect of live coverage of any eventin respect of live coverage of any event

Includes transfer of all or any rights in respect of Includes transfer of all or any rights in respect of cinematographic filmscinematographic films

Ship and Aircraft hire (other than covered by table in Ship and Aircraft hire (other than covered by table in Fourteenth Schedule) also coveredFourteenth Schedule) also covered

Tax Deduction at Source - Tax Deduction at Source - Any other IncomeAny other Income

At 10%At 10% Whether would cover : Whether would cover : For the time being For the time being

let us scratch our heads !!!!let us scratch our heads !!!! Capital gains ?Capital gains ? Purchase of goods ?Purchase of goods ? Donations ?Donations ? Incentives ?Incentives ? Remuneration to partners by firm ?Remuneration to partners by firm ? Payment from Savings Schemes/Provident Fund ?Payment from Savings Schemes/Provident Fund ? Exempt Incomes – payment of share of profit by firm to Exempt Incomes – payment of share of profit by firm to

partners, compensation paid by Government on account partners, compensation paid by Government on account of disasters ?of disasters ?

Payments to Government – Fees, etc.Payments to Government – Fees, etc.

Branch Profit TaxBranch Profit Tax

Salient Provisions:Salient Provisions: Applies to any Foreign CompanyApplies to any Foreign Company BPT @ 15% on “Branch Profits”BPT @ 15% on “Branch Profits” BP = TI – Income Tax on TIBP = TI – Income Tax on TI No other definition of “Branch Profits”No other definition of “Branch Profits”

Concept:Concept: Subsidiary v/s BranchSubsidiary v/s Branch Dividend equivalent e.g. applies on income Dividend equivalent e.g. applies on income

taxed on net basistaxed on net basis Indo-US DTAA – Article 14Indo-US DTAA – Article 14

Branch Profit Tax (contd)Branch Profit Tax (contd)

IssuesIssues applies to all F.C., whether or not PE in applies to all F.C., whether or not PE in

India?India? Applies to Special source Income like Applies to Special source Income like

Royalty, FTS, Interest etc.?Royalty, FTS, Interest etc.?

Let us deal the rest in Let us deal the rest in the next meetingthe next meeting

Thank YouThank You Still Some more Still Some more

time !!!!time !!!!IN DREAM