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.[1] 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.[2] 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assets (currently imposed on book profits), and the taxation of certain types of personal savings at the time they are withdrawn by an investor.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 | |||
[1] See PRS Legislative Brief on Draft Direct Taxes Code (version of August 2009) at http://prsindia.org/index.php?name=Sections&id=6 [2] Available at http://finmin.nic.in/Dtcode/index.html
On September 14, 2012 the government announced a new FDI policy for the broadcasting sector. Under the policy, FDI up to 74% has been allowed in broadcasting infrastructure services. Previously the maximum level of FDI permitted in most infrastructure services in the sector was 49% through automatic route. There could be three reasons for the increase in FDI in the sector. First, the broadcasting sector is moving towards an addressable (digital) network. As per Telecom Regulatory Authority of India (TRAI), this upgradation could cost Rs 40,000 crore. Second, the increase in FDI was mandated because a higher FDI was allowed for telecommunication services, which too are utilised for broadcast purposes. In telecommunications 74% FDI is allowed under the approval route. Third, within the broadcasting sector, there was disparity in FDI allowed on the basis of the mode of delivery. These issues were referred to by TRAI in detail in its recommendations of 2008 and 2010. Recent history of FDI in broadcasting services In 2008 and 2010 TRAI had recommended an increase in the level of FDI permitted. A comparison of recommendations and the new policy is provided below. 
As noted in the table, FDI in services that relate to establishing infrastructure, like setting up transmission hubs and providing services to the customers, is now at 49% under automatic route and 74% with government approval. FDI in media houses, on the other hand, have a different level of FDI permitted. TRAI’s recommendations on the two aspects of FDI in broadcasting Digitisation of cable television network: The Cable Televisions Networks Act, 1995 was amended in 2011 to require cable television networks to be digitised. By October 31, 2012 all cable subscriptions in Delhi, Mumbai, Chennai and Kolkata are required to be digitised. The time frame for digitisation for the entire country is December 31, 2014. However, this requires investment to establish infrastructure. As per the TRAI 2010 report, there are a large number of multi-system operators (who receive broadcasting signals and transmit them further to the cable operator or on their own). As per the regulator, this has led to increased fragmentation of the industry, sub-optimal funding and poor services. Smaller cable operators do not have the resources to provide set-top boxes and enjoy economies of scale. As per news reports, the announcement of higher FDI permission would enable the TV distribution industry to meet the October 31 deadline for mandatory digitisation in the four metros. Diversity in television services: FDI in transmitting signals from India to a satellite hub for further transmission (up-linking services) has not been changed. This varies on the basis of the nature of the channel. For non-news channels, FDI up to 100% with government approval was allowed even under the previous policy. However, the FDI limit for news channels is 26% with government approval. In 2008 TRAI had recommended that this be increased to 49%. However, it reviewed its position in 2010. It argued that since FM and up-linking of news channels had the ability to influence the public, the existing FDI level of 26% was acceptable. It also relied upon the level of FDI permitted in the press, stating that parity had to be maintained between the two modes of broadcast. Under the new policy the level of FDI permitted in these sectors has not been changed.
