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assets (currently imposed on book profits), and the taxation of certain types of personal savings at the time they are withdrawn by an investor.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 row over Bt Brinjal, a genetically modified version of the plant, provoked the government into imposing a moratorium on the commercial cultivation of the plant in India.  The debate has revolved around issues of economic efficacy, human health, consumer choice and farmers’ rights. Jairam Ramesh, the Minister of State for Environment and Forests, made public his views on the subject, a gist of which is given below:

  • The Genetic Engineering Approvals Committee (GEAC) report recommended commercial cultivation of Bt Brinjal but qualified it by stating that since the issue has important policy implications at the national level, the government should take a final view on the matter.
  • Most of the state governments have expressed concern and have sought to ban the use of Bt Brinjal, or all GM crops.
  • Pesticides have harmful effect on human health and Bt technology is one way of reducing pesticide use.  However, other routes such as non-pesticide pest management can be explored.  For example, about 6 lakh farmers in Andhra Pradesh practice non-pesticide pest management over an area of about 20 lakh acres.
  • Safety is a concern since the kind of tests that have been done is not specific or stringent enough to detect toxins.  Also, tests have only been carried out by the developers of the product, Maharashtra Hybrid Seeds Company Ltd. (Mahyco).  (The results of the biosafety tests are available on the GEAC website).
  • There is no large-scale public funded biotechnology effort toward agriculture, which could compete with Mahyco.  Monsanto is the main producer of Bt Brinjal, and Mahyco is owned to the extent of 26% by Monsanto.
  • While two government owned agricultural universities -- University of Agricultural Sciences, Dharwad and Tamil Nadu Agricultural University (TNAU), Coimbatore – have produced Bt Brinjal along with Mahyco, doubts have been raised about how Bt related research in these universities have been funded.
  • There are apprehensions that there will be diversity loss in the variety of Brinjal if Bt Brinjal is introduced, and this fear cannot be glossed over.
  • While Bt Cotton and Bt Brinjal are not comparable, the introduction of Bt Cotton in India has made India the second largest grower of cotton in the world.  Over 90% of cotton farmers in India cultivate Bt Cotton.  Many farmers support Bt Cotton on economic grounds but some did express doubts.
  • The Central Institute of Cotton Research, Nagpur has developed a Bt cotton variety (Bikaneri Nerma) whose seeds can be kept by farmers for planting during the next season.  The Director of the Institute while expressing support for Bt Brinjal has mentioned that resistance development is a serious issue.  Therefore, more tests that are well-designed, widely-accepted and independently conducted are necessary.
  • The GEAC process has been questioned by  Dr P.M. Bhargava, the Supreme Court nominee on GEAC.  He opposed the recommendation on the ground that all necessary tests had not been carried out before coming to a decision.  The 2006 committee of the GEAC had asked for several tests to be conducted which were not taken into account by the second expert committee.  All GEAC reports (including additional tests) of tests conducted with regard to Bt Brinjal are in the public domain.
  • There is some evidence that the GEAC not followed global regulatory norms of which India is a party.  For example, the Cartagena Protocol on Biosafety, Rio Declaration on Environment and Development etc.
  • Some international scientists have raised doubts about Bt Brinjal and the way the tests were conducted.
  • Many Indian scientists have supported commercialization of Bt Brinjal such as Dr G. Padmanabhan of the Indian Institute of Science; Dr Deepak Pental, Vice Chancellor of Delhi University; and Dr Raj Bhatnagar of the International Centre for Genetic Engineering and Biotechnology, New Delhi.  However, even they have mentioned the need for a statutory body with regulatory powers and R&D capabilities to govern all aspects of GM crops.
  • The Indian Council of Agricultural research and a number of farmer’s groups have come out in support of the move to introduce Bt Brinjal.

In order to understand the process followed by GEAC before giving the green signal to Bt Brinjal, we have made a timeline in which the plant was approved and the bodies involved in the process.

2000-2005 Scientific tests carried out by Mahyco on Bt Brinjal
2006 Mahyco submits bio-safety data to GEAC (regulatory body under the Ministry of Environment and Forests). Seeks permission for large scale trials.
  Supreme Court stops ongoing field trials of GM crops due to a PIL filed by civil society representatives.
2007 The expert committee 1 set up by GEAC, submits its report.  Recommends seven more studies on bio-safety be repeated for reconfirmation of data generated during confined multi-location trials but approves large scale trials.
  Supreme Court lifts ban on GM crop field trials subject to conditions such as isolation distance etc.
  As per GEAC direction, Indian Institute of Vegetable Research (IIVR) takes up the responsibility of large scale trails of Mahyco's Bt Brinjal trials at 10 research institutions across the country in 2007 and 11 in 2008.
2009 Jan: IIVR submits the results of the large scale trails. Due to concerns raised by several stakeholders, GEAC constitutes another expert committee to look into adequacy of biosafety data generated as well as the concerns raised by all stakeholders.
  Oct 8: Expert-committee 2 submits its report. States benefits of Bt Brinjal far outweigh the perceived and projected risks.
  Oct 14: GEAC approves the environmental release of Bt Brinjal containing the event EE1 (with one dissent note from P.M. Bhargava).
  Oct 15: Jairam Ramesh announces a nationwide consultation in January and February of 2010 pending a final decision on this issue.
2010 Jan 13 to Feb 6: Public meetings were organized on the Bt Brinjal issue. The summary of the consultations is available on the Ministry’s website.
  Many states announce ban on commercial cultivation of Bt Brinjal including Uttarakhand, Himachal Pradesh and Karnataka.
  Feb 9: Jairam Ramesh decides to halt the commercialization of Bt Brinjal.