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assets (currently imposed on book profits), and the taxation of certain types of personal savings at the time they are withdrawn by an investor.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.
|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|
In the last few years, several states have enacted laws to curb cheating in examinations, especially those for recruitment in public service commissions. According to news reports, incidents of cheating and paper leaks have occurred on several occasions in Uttarakhand, including during the panchayat development officer exams in 2016, and the Uttarakhand Subordinate Services Selection Commission exams in 2021. The Uttarakhand Public Service Commission papers were also leaked in January 2023. The most recent cheating incidents led to protests and unrest in Uttarakhand. Following this, on February 11, 2023, the state promulgated an Ordinance to bar and penalise the use of unfair means in public examinations. The Uttarakhand Assembly passed the Bill replacing the Ordinance in March 2023. There have been multiple reports of candidates being arrested and debarred for cheating in public examinations for posts such as forest guard and secretariat guard after the ordinance’s introduction. Similar instances of cheating have also been noted in other states. As per news reports, since 2015, Gujarat has not been able to hold a single recruitment exam without reported paper leaks. In February 2023, the Gujarat Assembly also passed a law to penalise cheating in public examinations. Other states such as Rajasthan (Act passed in 2022), Uttar Pradesh (Act passed in 1998) and Andhra Pradesh (Act passed in 1997) also have similar laws. In this blog, we compare anti-cheating laws across some states (see Table 1), and discuss some issues to consider.
Typical provisions of anti-cheating laws
Anti-cheating laws across states generally contain provisions that penalise the use of unfair means by examinees and other groups in public examinations such as those conducted by state public sector commission examinations and higher secondary education boards. Broadly, unfair means is defined to include the use of unauthorised help and the unauthorised use of written material by candidates. These laws also prohibit individuals responsible for conducting examinations from disclosing any information they acquire in this role. The more recent laws, such as the Gujarat, Uttarakhand, and Rajasthan ones, also include the impersonation of candidates and the leaking of exam papers within the definition of unfair means. Uttarakhand, Gujarat, Rajasthan, Uttar Pradesh, Chhattisgarh, and Andhra Pradesh prohibit the use of electronic aids. Maximum prison sentences for using such unfair means range from three months in Uttar Pradesh, to seven years in Andhra Pradesh.
Issues to consider
The Gujarat and Uttarakhand anti-cheating Acts have relatively stringent provisions for cheating. The Uttarakhand Act has a fixed 3-year prison sentence for examinees caught cheating or using unfair means (for the first offence). Since the Act does not distinguish between the different types of unfair means used, an examinee could serve a sentence disproportionate to the offence committed. In most other states, the maximum imprisonment term for such offences is three years. Andhra Pradesh has a minimum imprisonment term of three years. However, all these states allow for a range with respect to the penalty, that is, the judge can decide on the imprisonment term (within the specified limits) depending on the manner of cheating and the implications of such cheating. Table 1 below compares the penalties for certain offences across eight states.
The Uttarakhand Act has a provision that debars the examinee from state competitive examinations for two to five years upon the filing of the chargesheet, rather than upon conviction. Thus, an examinee could be deprived of giving the examination even if they were innocent but being prosecuted under the law. This could compromise the presumption of innocence for accused candidates. The Gujarat and Rajasthan laws also debar candidates from sitting in specified examinations for two years, but only upon conviction.
These laws also vary in scope across states. In Uttarakhand and Rajasthan, the laws only apply to competitive examinations for recruitment in a state department (such as a Public Commission). In the other six states examined, these laws also apply to examinations held by educational institutions for granting educational qualifications such as diplomas and degrees. For example, in Gujarat, exams conducted by the Gujarat Secondary and Higher Secondary Education Board are also covered under the Gujarat Public Examination (Prevention of Unfair Means) Act, 2023. The question is whether it is appropriate to have similar punishments for exams in educational institutions and exams for recruitment in government jobs, given the difference in stakes between them.
Sources: The Rajasthan Public Examination (Measures for Prevention of Unfair Means in Recruitment) Act, 2022; the Uttar Pradesh Public Examinations (Prevention of Unfair Means) Act, 1998; the Chhattisgarh Public Examinations (Prevention of Unfair Means) Act, 2008; the Orissa Conduct of Examinations Act, 1988; the Andhra Pradesh Public Examinations (Prevention of Malpractices and Unfair means) Act, 1997; the Jharkhand Conduct of Examinations Act, 2001, the Uttarakhand Competitive Examination (Measures for Prevention and Prevention of Unfair Means in Recruitment) Act, 2023, the Gujarat Public Examination (Prevention of Unfair Methods) Act, 2023; PRS.