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TAX

KPMG IN INDIA

OPPI Knowledge Series

Impact of Direct Taxes Code Bill 2010September 2010


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2010 KPMG India Private Limited, an Indian private limited company and a member firm of the KPMG network of independent me mber firms affiliated with KPMG International, aSwiss cooperative. All rights reserved.

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Agenda1 Background

2 Corporate Tax3

4 Capital Gains

5 Overview Sources of Income

6

7

8

910

11

International Taxation

12

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2010 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), aSwiss entity. All rights reserved.

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15

Branch Profits Tax

Transfer Pricing

MATDeduction for Scientific R & D allowance

Tax Incentives - Others

SEZs / SEZ Units

14 DDT Credit

16 CFC17

Hits & Misses / Key focus areas for MNCs

Business income

Personal tax

Wealth tax


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3

Background

DTC 2009 unveiled in August 2009

The Government received over 1,600 representations on DTC 2009

RDP released in June 2010 on 11 specific issues

DTC 2010 tabled in the Lok Sabha on 30 August 2010

DTC 2010 to cost the Exchequer revenue loss of INR 531,720 Million on reduced rates

After clearance from the Parliamentary Standing Committee, the Bill may be passed inthe Winter Session

The DTC 2010 to be effective from FY commencing 1 April 2012

319 Sections and 22 Schedules in DTC 2010 vis--vis

298 Sections and 14 Schedules in the ITA

Simplified Legislation ?


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4

Category ITA (Headline Rates) DTC 2010

Income Tax - Indian Company 30 percent 30 percent

Income tax - ForeignCompany

40 percent

30 percent

Additional branch profit tax - 15percent

MAT 18 percent 20 percent

DDT 15 percent 15 percent

Income distributed by mutualfund to unit holders of equityoriented Funds

Not applicable 5 percent of income distributed

Income distributed by lifeinsurance companies to policyholders of equity oriented lifeinsurance Schemes

Not applicable 5 percent of income distributed

Corporate Tax Rates


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Personal Tax - Rates of income tax

Impact / Issues

Token reduction in tax liability (i.e. increase in net disposable income)

In case of Resident Women same exemption limit as Resident Men assessees

Education cess (@ 3 per cent) has been abolished

Existing Slabs

(As per ITA)

Proposed Slabs

(As per DTC 2010)

Tax Rate

(Per cent)

Upto INR 160,000* Upto INR 200,000* Nil

INR 160,001 to 500,000 INR 200,001 to 500,000 10

INR 500,001 to 800,000 INR 500,001 to 1,000,000 20

Above INR 800,000 Above INR 1,000,000 30

For resident Senior Citizens (i.e. 65 years of age or more) basic exemption limit enhanced to INR 250,000from INR 240,000


6/34 2010 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a

Swiss entity. All rights reserved.6

Personal Tax - Definition of Residency

Category of Not Ordinary Resident

deleted but the concept remains

Individual can be either Resident or

Non Resident

Residency threshold for visiting Indiancitizens/person(s) of Indian origin

reduced to 60 days from 182 days

Expatriates of Foreign Nationality not

adversely affected qua Income-Tax;

however, adversely affected qua Wealth

Tax




Personal Tax - Income from Employment

Employer defined

means a person who controls an individual under an express or implied

contract of employment and is obliged to compensate him by way of salary

Income from Employment = Gross Salary Specified Deductions

TDS on salary now on payment/ credit whichever is earlier

Additional burden of TDS on credit to books of accounts

Most exemptions/ deductions retained with minor tweaking




Personal Tax Incentives

Impact / Issues

Retaining EEE taxation major relief in absence of established social security system

Withdrawals of Provident Fund, amounts received on death/ maturity of life insurance policy tax-free

Avenues reduced (no Housing Loan Principal, ELSS, Fixed deposits etc)

Incentives

Exempt Exempt Exempt (EEE) mode of taxing long term retiral savings retained

Deduction to approved provident funds, pension funds etc upto INR 100,000 p.a.

Deduction limits for life (premium less than 5 per cent) and health insurance premiums,tuition fees restricted to INR 50,000 p.a.




Personal Tax Incentives

Investment ITA DTC 2010 Impact

Life InsurancePremium (LIP)

LIP deduction upto INR 1

Lakh (if premium < 20 percent of capital sum)

LIP deduction - upto

INR 50,000 (if premium

direct taxes code-oppi sep 14

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