Direct tax code Confederation of all India Traders New Delhi

DISCLAIMER The presentation is not a legal interpretation of law. It is prepared to give a general broad outline of the code. It is to make a layman understand what is coming. The provisions highlighted are generally those which are useful to trading community in general. For specific understanding of law or for individual applicability it is adviced to consult your tax advisor who know you better.

Introduction released on to come into force on 1 April, 2011, if enacted Chapter I to XVI (Section 1 to 285) Part A (from Chapter II) to Part H Eighteen Schedules 318 definitions

MAIN OBJECTS TO MINIMISE TAX EXCEPTIONS. MINIMISE COST OF COLLECTION OF TAXES. REDUCE COST OF COMPLIANCES OF TAX LAWS. TO REDUCE AMBIGUITY IN TAX LAWS. TO EXPAND TAX PAYERS BASE. TO ENCOURAGE PROPER TAX COMPLIANCES. TO REWRITE TAX LAW AND MAKE IT SIMPLER. TO STOP TAX EVATION.

HIGHLIGHTS ALL DIRECT TAXES HAS BEEN BROUGHT UNDER ONE CODE. NOW INCOME TAX ACT WILL BE CALLED “DIRECT TAX CODE”. IT WILL BE APPLICABLE THROUGHOUT THE COUNTRY. Losses to be allowed to be carried forward indefinitely for set-off in the subsequent financial years Certain expenses such as expenditure attributable to tax free income, expenditure incurred for any purpose prohibited by law, provision for unascertained liability, etc. not to be allowed as deduction in computing the total income. Payments in respect of which tax has not been deducted at source to be disallowed; however, deduction to be allowed in the year of payment, subject to certain exceptions. Where the payment is made after two years from the end of the financial year in which the tax was deductible at source, no deduction to be allowed

LAW NEARLY OLD BUT WORDS NEWS THE NEW CODE IS ON THE LINES OF OLD ACT. MANY NEW WORDS HAVE BEEN INTRODUCED WITH THEIR DEFINATION. A NEW CHAPTER DEFINING 318 WORDS HAS BEEN INTRODUCED. ASSESSMENT YEAR AND PREVIOUS YEAR HAS BEEN REPLACED WITH ‘FINANCIAL YEAR’. INCOME WILL NOW BE DETERMINED IN TWO CLASS;  SPECIAL SOURCE  ORDINARY SOURCE CAPITAL ASSESTS WILL BE CALLED INVESTMENT ASSEST. DIFFERENCE BETWEEN LONG TERM CAPITAL ASSEST AND SHORT TERM CAPITAL ASSET ABOLISHED. THERE WILL BE SPECIAL TREATMENT FOR ASSEST ABOVE ONE YEAR HOLDING.

NEW WORDS INSTEAD OF INCOME FROM SALARY IT WILL BE CALLED ‘INCOME FROM EMPLOYMENT’. INSTEAD OF INCOME FROM OTHER SOURCES IT WILL BE CALLED ‘INCOME FROM RESIDUARY SOURCES’. INSTEAD OF RETURN OF INCOME IT WILL BE CALLED ‘SELF REPORTING OF TAX BASE’. BUSINESS EXPENDITURE WILL BE CLASSIFIED INTO THREE (I) OPERATING EXPENDITURE (ii) PERMITTED FINANCE CHARGES and (iii) CAPITAL ALLOWANCES. INSTEAD OF CAPITAL ASSET IT WILL BE CALLED INVESTMENT ASSET.

TAX FREE INCOME AGRICULTURE INCOME. Amount received as member of HUF from HUF. Any amount received from a person received assessed separately. Amount standing to credit of PF account as on Dividends received from a company. Capital gains on sale of agriculture land in rural area.

Total Income Ordinary Sources employment house property business Capital Gains Residuary Sources Special Sources specified income of non- residents, winning from lotteries, horse races, etc 9

INCOME FROM SALARY NOW IT WILL BE CALLED ‘INCOME FROM EMPLOYMENT’. NOW’GROSS SALARY’ WILL INCLUDE ALL SUM (ADVANCE AND ARREARS) RECEIVED FROM EMPLOYER. FOLLOWING DEDUCTIONS WILL BE ALLOWED :  PROFESSIONAL TAX  CONVENANCE ALLOWANCE FOR COMMUTING BETWEEN RESIDENCE AND OFFICE.  EXPENDITURE ACTUALLY INCURRED ON EMOLOYMENT.  VRS, GRATUITY, PENTION ETC.

Impact on salaried individuals Mixed bag – carrot with a stick All allowances (including house rent allowance) except for transport allowance and special allowance for performance of duties of an office/employment of profit to be fully taxed. ‘Exempt-Exempt-Exempt’ to ‘Exempt-Exempt-Tax’ regime. Permitted Savings Intermediaries to be reduced to four. The current deduction available for housing loan interest up to INR 150,000 for self occupied property to be done away with. Gratuity payment made to employees on change of jobs will be allowed tax exemption only if it is invested in a retirement fund. If an employee fails to invest it in such a fund, such receipts will be taxed at the appropriate marginal rate of tax. 11

INCOME FROM HOUSE PROPERTY Tax will be levied on ‘GROSS RENT’. Gross rent will be agreed rent or 6% of annual ratable value whichever is higher plus advance rent if any received. If ratable value is not fixed then 6% of cost of construction shall be taken. Gross rent of one ‘self occupied house’ shall be taken as NIL. The deductions from Gross Rent shall be;  Actually paid taxes to local authority.  Taxes on services to central govt.  20% of gross rent towards repairs and maintenance.  Interest paid on funds borrowed for acquiring, repair, renew etc. For self occupied no deduction for taxes and interest.

INCOME FROM CAPITAL GAINS Income from sale of investment asset will be taxed under this head. It will be taxed in the year when the asset is transferred. Gains arising from transfer of personal effects & agriculture land beyond certain limits will be exempt. Capital gains will be full consideration minus;  Cost of acquisition, Cost of improvement., Transfer related expenses. If asset is sold after one year from end of financial year in which it is acquired then cost etc will be indexed. Capital gains from sale of shares will also be brought under tax. For assets acquired prior to cost of acquisition will taken as value as on Benefit of tax will be given if investment in one residential house is made (provided he do not own any house), agriculture land is purchased from sale of agriculture or amount is deposited in ‘Capital Gains saving scheme.

INCOME FROM OTHER SOURCES Now it will be called ‘income from residuary sources’. Income which is not taxable under any other will be taxed here. Major sources of income will be:  Interest, withdrawal of investment eligible for deduction, advance or security deposit received from long term leasing or interest or investment asset.  Any sum exceeding Rs. 20,000/- taken or repaid otherwise by account payee cheque.  Any sum received from L.I.C. if the premium exceeds 5% of capital sum assured.

INCOME FROM BUSINESS Income from each business will be computed separately. Except for presumptive tax businesses income from each businesses will be taxed on basis of gross receipts minus expenses.

Income from business Every business to constitute a separate source for the purpose of computation of income provided there is no interdependence between the two businesses. Gross earnings Deduction of business expenditure Deduction of operating expenditure Deduction for permitted finance charges Computation of capital allowances Computation of depreciation All assets to be classified into business and investment assets, wherein business assets to be further classified into business trading assets and business capital assets. Only income from transactions in business assets to form part of business income. Profit on sale of business capital assets, profit on sale of an undertaking under a slump sale, transfer of any self generated business asset, etc. to be treated as business income

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SECTORS ENJOYING SPECIAL INCENTIVE Building running and maintaining infrastructure. Power generation, trasmission and distribution. Barring certain areas running of hospital. Processing, frizzing and packing of fruits and vegetables. Installation and running of cold chain facilities. Establishing and running of wharehouses of agri produce.

. RATES FOR DEDUCTION OF TAX AT SOURCE Sr. NoNature of PaymentRate 1.Salary paid to employeesThe average rate of income tax on salary paid during the financial year, computed on the basis of the rates specified in rule 1 of the First Schedule 2.Payment in respect of -One Percent (a)Works Contract;If value of Contract does not exceed Rs. 20,000/- & aggregate Rs. 50,000/- (b)Service Contract; (c)Broadcasting and telecasting; or (d)Supply of labour for carrying out any works, or service, contract 3.Payment in respect of advertisingOne Percent 4.Payment in respect of carriage of goods and passengers by any mode of transport other than by railways If PAN not furnished 5.InterestTen Percent 6.Dividend other than dividend in respect of which dividend distribution tax is payable Ten Percent 7.Commission, brokerage, remuneration, or prize, (by whatever name called) for rendering any services if it exceeds Rs 5000/- Ten Percent 8.Fees for professional or technical servicesTen Percent

T D S….. 9.Payment for royalty or non-compete feeTen Percent 10.Payment of compensation on compulsory acquisition Ten Percent 11.Rent : If exceed Rs /- per annum (i)For the use of machinery or plant or equipment(i) Ten Percent (ii)For use of any land or building (including factory building) or land appurtenant to a building including factory building)or furniture or fittings. (ii) Ten Percent 12.Winning from any lottery or crossword puzzleThirty Percent 13.Winning from any horse raceThirty Percent 14.Any other incomeTen Percent

Tax collection at source On certain type of transaction the seller of goods will have to collect tax. Rate of tax collection at source will be 3% of sale price of goods. The provisions for tax collection at source will be applicable on sale of following. Alcoholic drinks for human consumption Tobacco leaves Timber Forest produce Sale of Scrape Lease money for Parking Lease of Toll Plaza Contract for mining lease

.. DETERMINATION OF INCOME ON PRESUMPTIVE BASIS Sr.Nature of BusinessAmount of incomeConditions 1.Business of plying, hiring or leasing of heavy goods vehicle The income from all the heavy goods vehicles owned by the assessee, calculated at the rate of 5000/- from each heavy goods vehicle for every month The number of heavy goods vehicle owned should be ten or less 2.Business of plying, hiring or leasing of light goods vehicle The income from all the light goods vehicles owned by the assessee, calculated at the rate of 4000/- thousand rupees from each light goods vehicle for every month The number of light goods vehicle owned should be ten or less 3.Any business other than- The business referred to in serial numbers 1 and 2; and Any profession Eight per cent of the total turnover, or gross receipts, of the assessee in the financial year from the business; The total turnover or gross receipts of the assessee in the financial year from the business is one crore rupees or less  The income computed under Rule 1 shall be presumed to have been computed after giving full effect to every loss, allowance or deduction under this code  The provisions of this section shall not apply to- (i)the assessee keeps and maintains all the books of account and other documents referred to in section 85 in respect of the business regardless of anything to the contrary contained in that section (ii)the assessee gets his accounts audited and obtains a report of such audit as required under section 86 in respect of the business regardless of anything to the contrary contained in that section;

MAINTAINANCE OF BOOKS OF ACCOUNTS Every person whose income is more than Rs. 2 lakhs or Whose turnover in any one year in preceeding three exceeds Rs. 10 lakhs. Will have to maintain books of acconnts. Cash book, Journal, Ledger daily stock book, copy of billsoriginals of purchase and expenditure. If turnover exceeds Rs 40 lakhs than audit is compulsory. This will not be applicable to persons covered under presumtive income scheme.

Tax Deduction at Source Tax has to be deducted while incurring certain expenditure or while making certain payments The recipient of money can apply to his assessing officer for lower rate of deduction of tas The amount of tax deducted has to be deposited the govt. treasury. The tax deductor has to issue certificate for the amount of tax deducted in prescribed form. Tax deductor has to file return of TDS. The credit for deducted will be given to deductor in the same year in which tax is deducted.

SPECIAL INCENTIVE TO CERTAIN BUSINESSES In order to promote certain sectors, while determining their income out of gross receipts deduction for business including CAPITAL expenditure like land, building, plant & machinery etc will also be given If the expenditure is not fully absorbed in a year it will be carry forward to be adjusted in subciquent year. It will be presumed that full depreciation has been allowed to this assessee. The special sector is:-

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NEW RATES OF TAXES ANNUAL INCOMERATES OF TAXES Individuals & H.U.Fs up to Rs lakhs Women having income up to Rs lakhs Senior citizens up to Rs lakhs NIL Exceeding above up to Rs. 10 lakhs10% on amount exceeding above amount Exceeding Rs. 10 lakhs up to Rs. 25 lakhsRs. 84,000/- plus 20% on amount exceeding Rs.10 lakh In excess of Rs. 25 lakhsRs. 3,84,000/- plus 30% on amount exceeding Rs 25 lakh Charitable institutions15% on whole income. Partnerships, A.O.P. etc30% on whole income. Companies25% on whole income.

DUE DATES FOR PAYMENT OF ADVANCE TAX DATE FOR COMPANIES OTHERS Before 15 th of June15% of taxNIL Before 15 th of September45% of tax30% of tax Before 15 th of December75% of tax60% of tax Before 15 th of March100% of tax

WEALTH TAX VALUE OF WEALTH AS ON 31 ST OF MARCH RATE OF TAX If value of wealth is up to Rs. 50 crores NIL If value exceeds Rs. 50 crores0.25%on value exceeding Rs. 50 crores.

TAX RETURNS For non business and non corporate due date is 30th June. For others due date is 31st August. Revise return or belated return can be filed upto 21 months from end of year. There will be two categories of non filers of return Non Filers and 2) Stop Filers A non filer is a person who has not filed return for current year and last two years A stop filer is a person who has not filed return for current year but had filed return in earlier year or was required to file return in earlier years.

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