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The draft Direct Taxes Code Bill seeks to consolidate and amend the law relating to all direct taxes and will replace the Income Tax Act, 1961. The draft Bill, along with a discussion paper, was released for public comments in August 2009.[1] Following inputs received, the government proposed revisions to the draft Bill in June 2010. The table below summarises these revisions. The government has not released the changes proposed in the form of a revised draft bill however, but as a new discussion paper. The note is based on this discussion paper.[2] The Code had proposed a number changes in the current direct tax regime, such as a minimum alternate tax (MAT) on companies’ assets (currently imposed on book profits), and the taxation of certain types of personal savings at the time they are withdrawn by an investor. Under the new amendments, some of these changes, such as MAT, have been reversed. Personal savings in specified instruments (such as a public provident fund) will now continue to remain tax-free at all times. The tax deduction on home loan interest payments, which was done away with by the Code, has now been restored. However, the discussion paper has not specified whether certain other changes proposed by the Code (such as a broadening of personal income tax slabs), will continue to apply.
| Issue | Income Tax Act, 1961 | Draft Direct Taxes Code (August 09) | Revisions Proposed (June 2010) |
| Minimum Alternate Tax (MAT) | MAT currently imposed at 18% of profits declared by companies to shareholders. | To be imposed on assets rather than profits of companies. Tax rate proposed at 2% (0.25% for banks) | MAT to be imposed on book profit as is the case currently. Rate not specified. |
| Personal Saving / retirement benefits | Certain personal savings, such as public provident funds, are not taxed at all. | Such savings to be taxed at the time of withdrawal by the investor. | Such savings to remain tax-exempt at all stages, as is the case currently. |
| Income from House Property | Taxable rent is higher of actual rent or ‘reasonable’ rent set by municipality(less specified deductions). Rent is nil for one self-occupied property. | Taxable rent is higher of actual rent or 6% of cost /value set by municipality (less specified deductions). Rent is nil for one self-occupied property. | Taxable rent is no longer presumed to be 6% in case of non-let out property. Tax deductions allowed on interest on loans taken to fund such property. |
| Interest on Home loans | Interest on home loans is tax deductible | Tax deductions on home loan interest not allowed. | Tax deductions for interest on loans allowed, as is currently the case. |
| Capital Gains | Long term and short term gains taxed at different rates. | Distinction between long and short term capital gains removed and taxed at the applicable rate; Securities Transaction Tax done away with. | Equity shares/mutual funds held for more than a year to be taxed at an applicable rate, after deduction of specified percentage of capital gains. No deductions allowed for investment assets held for less than a year. Securities Transaction tax to be ‘calibrated’ based on new regime. Income on securities trading of FIIs to be classified as capital gains and not business income. |
| Non-profit Organisations | Applies to organizations set up for ‘charitable purposes’. Taxed (at 15% of surplus) only if expenditure is less than 85% of income. | To apply to organizations carrying on ‘permitted welfare activities’. To be taxed at 15% of income which remains unspent at the end of the year. This surplus is to be calculated on the basis of cash accounting principles. | Definition of ‘charitable purpose’ to be retained, as is the case currently. Exemption limit to be given and surplus in excess of this will be taxed. Up to 15% of surplus / 10% of gross receipts can be carried forward; to be used within 3 years. |
| Units in Special Economic Zones | Tax breaks allowed for developers of Special Economic Zones and units in such zones. | Tax breaks to be done away with; developers currently availing of such benefits allowed to enjoy benefits for the term promised (‘grandfathering’). | Grandfathering of exemptions allowed for units in SEZs as well as developers. |
| Non-resident Companies | Companies are residents if they are Indian companies or are controlled and managed wholly out of India. | Companies are resident if their place of control and management is situated wholly or partly in India, at any time in the year. The Bill does not define ‘partly’ | Companies are resident if ‘place of effective management’ is in India i.e. place where board make their decisions/ where officers or executives perform their functions. |
| Double Taxation Avoidance Agreements | In case of conflict between provisions of the Act, and those in a tax agreement with another country, provisions which are more beneficial to the taxpayer shall apply | The provision which comes into force at a later date shall prevail. Thus provisions of the Code would override those of existing tax agreements. | Provisions which more beneficial shall apply, as is the case currently. However, tax agreements will not prevail if anti-avoidance rule is used, or in case of certain provisions which apply to foreign companies. |
| General Anti-Avoidance Rule | No provision | Commissioner of Income Tax can declare any arrangement by a taxpayer as ‘impermissible’, if in his judgement, its main purpose was to have obtained a tax benefit. | CBDT to issue guidelines as to when GAAR can be invoked; GAAR to be invoked only in cases of tax avoidance beyond a specified limit; disputes can be taken to Dispute Resolution Panel. |
| Wealth Tax | Charged at 1% of net wealth above Rs 15 lakh | To be charged at 0.25% on net wealth above Rs 50 crore; scope of taxable wealth widened to cover financial assets. | Wealth tax to be levied ‘broadly on same lines’ as Wealth Tax Act, 1957. Specified unproductive assets to be subject to wealth tax; nonprofit organizations to be exempt. Tax rate and exemption limit not specified. |
| Source: Income Tax Act, 1961, Draft Direct Taxes Code Bill (August 2009), New Discussion Paper (June 2010), PRS | |||
[1] See PRS Legislative Brief on Draft Direct Taxes Code (version of August 2009) at http://prsindia.org/index.php?name=Sections&id=6 [2] Available at http://finmin.nic.in/Dtcode/index.html
The right to food and food security have been widely discussed in the media. The National Food Security Bill, 2011, which makes the right to food a legal right, is currently pending in Parliament. The Bill seeks to deliver food security by providing specific entitlements to certain groups of individuals through the Targeted Public Distribution System, a large-scale subsidised foodgrain distribution system. The Standing Committee on Food, Consumer Affairs and Public Distribution presented its report on the Food Security Bill on January 17, 2013. It made recommendations on key issues such as the categorisation of beneficiaries, cash transfers and cost sharing between the centre and states. A comparison of the Bill and Committee’s recommendations are given below.
|
Issue |
Food Security Bill |
Standing Committee’s Recommendations |
| Who will get food security? | 75% of the rural and 50% of the urban population (to be divided into priority and general categories). Of these, at least 46% of the rural and 28% of urban populations will be priority (the rest will be general). | Uniform category: Priority, general and other categories shall be collapsed into ‘included’ and ‘excluded’ categories.Included category shall extend to 75% of the rural and 50% of the urban population. |
| How will they be identified? | The centre shall prescribe guidelines for identifying households; states shall identify the specific households. | The centre should clearly define criteria for exclusion and consult with states to create inclusion criteria. |
| What will they get? | Priority:7 kg foodgrains/person/month (at Rs 3/kg for wheat, Rs 2/kg for rice, Rs 1/kg for coarse grains).General: 3 kg foodgrains/person/ month (at 50% of MSP). | Included: 5 kg foodgrains/person/month (at subsidised prices). Pulses, sugar, etc., should be provided in addition to foodgrains. |
| Reforms to TPDS | Doorstep delivery of foodgrains to ration shops, use of information technology, etc. | Implement specific IT reforms, for e.g. CCTV cameras in godowns, use of internet, and GPS tracking of vehicles carrying foodgrains. Evaluate implementation of TPDS every 5 yrs. |
| Cost-sharing between centre and states | Costs will be shared between centre and states. Mechanism for cost-sharing will be determined by the centre. | Finance Commission and states should be consulted regarding additional expenditure to be borne by states to implement the Bill. |
| Cash Transfers | Schemes such as cash transfer and food coupons shall be introduced in lieu of foodgrains. | Cash transfers should not be introduced at this time. Adequate banking infrastructure needs to be set up before introduction. |
| Time limit for implementation | The Act shall come into force on a date specified by the centre. | States to be provided reasonable time limit i.e., 1 year, after which Act will come into force. |
To access the Bill, a detailed comparison of the Standing Committee recommendations and the Bill, and other relevant reports relevant, see here.
