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assets (currently imposed on book profits), and the taxation of certain types of personal savings at the time they are withdrawn by an investor.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
The Department of Land Resources in the Ministry of Rural Development has released a draft version of The Land Titling Bill, 2011 on its website. This draft is a major revision of the original draft Bill released in 2010. Public comments on this draft are invited before June 24, 2011. A copy of the draft can be found here. The Bill provides for the registration of all immovable property to establish a system of conclusive, electronically recorded titles. It also provides for a mechanism to invite objections and for the resolution of disputes through special tribunals. The property record will be considered as conclusive ownership by the person mentioned. This will help resolve uncertainties in property transactions. Given that land is a state subject, the Bill is meant to be a model law for adoption by the states individually. The framework of the bill is explained below. I. Land Titling Authority and Preparation of Records The Bill establishes a Land Titling Authority at the State level. The Authority’s task is to prepare a record of all immovable properties in its jurisdiction. These records will contain (a) survey data of boundaries of each property; (b) a unique identification number for each property, which may be linked to a UID number; (c) any record created by an officer of the state or UT government authorised by the laws of that state to make such records; and (d) a record of Title over each property. II. Title Registration Officer and Registration Process The Bill provides for the government to create Title Registration Offices at various places, and for a Title Registration Officer (TRO) to function under the supervision of the Land Titling Authority. The TRO will have powers of a civil court and is charged with the task of creating e a Register of Titles. Steps for the registering of titles include: (a) notification of available land records data by the TRO, (b) invitation to persons with interest in such properties to make objections to the data, and (c) registration of properties by the TRO for which no dispute is brought to his notice in writing. In the case the absoluteness of the title to a property is disputed, the TRO will make an entry into the Register of Titles to that effect and refer the case to the District Land Titling Tribunal (discussed below) III. District Land Titling Tribunal and State Land Titling Appellate Tribunal The Bill proposes to set up a District Land Titling Tribunal, consisting of one or more serving officers not below the rank of Joint Collector / Sub Divisional Magistrate of the District. The government may also establish one or more State Land Titling Appellate Tribunals, to be presided over by serving Judicial Officers in the rank of District Judge. Revisions to the orders of the State Land Titling Appellate Tribunal may be made by a Special Bench of the High Court. The Bill bars civil courts from having jurisdiction to entertain proceedings in respect to matters that the TRO, District Land Titling Tribunal, and State Land Titling Appellate Tribunal are empowered to determine. IV. Completion of Records and Notification When preparation of the Record for whole or part of a specific are is complete, it will be notified. Any person aggrieved by the notified entry in the Register of Titles may file an objection before the District Land Titling Tribunal within three years of the notification. Additionally, the person may file an application with the TRO for an entry to be made in the Register of Titles. The TRO shall do so when the application has been admitted to the Tribunal. Minor errors in the Title of Registers can be rectified through an application to the TRO. V. Register of Titles After completion of records is notified by the Authority, the Register of Titles is prepared and maintained by the Authority. For each property, the Register will include: (a) general description, map, and locational details of the immovable property; (b) descriptive data such as a unique identification number, plot number, total area, built up and vacant area, address, site area, and undivided share in the land; (c) detail of survey entry, provisional title record, conclusive title record and status, mortgage, charges, other rights and interests in the property; (d) details of transfer of the property and past transactions; and (e) disputes pertaining to the property. Entries in the Register of Titles will serve as conclusive evidence of ownership. These entries shall be maintained in electronic form, indemnified, and kept in the public domain.
