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. 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. 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assets (currently imposed on book profits), and the taxation of certain types of personal savings at the time they are withdrawn by an investor.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.
|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.
|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.
|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.
|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
|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.
|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
Discussion on the first no-confidence motion of the 17th Lok Sabha began today. No-confidence motions and confidence motions are trust votes, used to test or demonstrate the support of Lok Sabha for the government in power. Article 75(3) of the Constitution states that the government is collectively responsible to Lok Sabha. This means that the government must always enjoy the support of a majority of the members of Lok Sabha. Trust votes are used to examine this support. The government resigns if a majority of members support a no-confidence motion, or reject a confidence motion.
So far, 28 no-confidence motions (including the one being discussed today) and 11 confidence motions have been discussed. Over the years, the number of such motions has reduced. The mid-1960s and mid-1970s saw more no-confidence motions, whereas the 1990s saw more confidence motions.
Figure 1: Trust votes in Parliament
Note: *Term shorter than 5 years; **6-year term.
Source: Statistical Handbook 2021, Ministry of Parliamentary Affairs; PRS.
The no-confidence motion being discussed today was moved on July 26, 2023. A motion of no-confidence is moved with the support of at least 50 members. The Speaker has the discretion to allot time for discussion of the motion. The Rules of Procedure state that the motion must be discussed within 10 days of being introduced. This year, the no-confidence motion was discussed 13 calendar days after introduction. Since the introduction of the no-confidence motion on July 26, 12 Bills have been introduced and 18 Bills have been passed by Lok Sabha. In the past, on four occasions, the discussion on no-confidence motions began seven days after their introduction. On these occasions, Bills and other important issues were debated before the discussion on the no-confidence motion began.
Figure 2: Members rise in support of the motion of no-confidence in Lok Sabha