Direct tax codeDirect 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 12.08.2009. 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

31.3.2010. Dividends received from a company. Capital gains on sale of agriculture land in rural

area.

Total IncomeOrdinary 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 1.4.2000 cost of acquisition will taken as value as

on 1.4.2000. 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

DISALLOWABLE EXPENDITURE

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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. No Nature of Payment Rate

1. Salary paid to employees The 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 advertising One 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. Interest Ten 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 services Ten Percent

T D S…..

9. Payment for royalty or non-compete fee Ten Percent

10. Payment of compensation on compulsory acquisition

Ten Percent

11. Rent : If exceed Rs. 120000/- 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 puzzle Thirty Percent

13. Winning from any horse race Thirty Percent

14. Any other income Ten 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 Business Amount of income Conditions

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 codeThe 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 INCOME RATES OF TAXESIndividuals & H.U.Fs up to Rs. 1.60 lakhs

Women having income up to Rs. 1.90 lakhs

Senior citizens up to Rs. 2.40 lakhs

NIL

NIL

NIL

Exceeding above up to Rs. 10 lakhs 10% on amount exceeding above amount

Exceeding Rs. 10 lakhs up to Rs. 25 lakhs Rs. 84,000/- plus 20% on amount exceeding Rs.10 lakh

In excess of Rs. 25 lakhs Rs. 3,84,000/- plus 30% on amount exceeding Rs 25 lakh

Charitable institutions 15% on whole income.

Partnerships, A.O.P. etc 30% on whole income.

Companies 25% on whole income.

DUE DATES FOR PAYMENT OF ADVANCE TAX

DATE FOR COMPANIES

OTHERS

Before 15th of June 15% of tax NIL

Before 15th of September 45% of tax 30% of tax

Before 15th of December 75% of tax 60% of tax

Before 15th of March 100% of tax 100% of tax

WEALTH TAX

VALUE OF WEALTH AS ON 31ST OF MARCH

RATE OF TAX

If value of wealth is up to Rs. 50 crores

NIL

If value exceeds Rs. 50 crores 0.25%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.

THANKS

YOU ARE GOOD AUDIENCE