Direct Tax Code

DIRECT TAX CODE
PRESENTED TO –
DR. S.K. LAROIYA
&
SECTION –C(MBA-G)2012
BY
TUHIN DUTTA C-53
PIYUSH SHARMA C-62
KULDEEP SINGH C-64
What is the Direct Tax Code all about?
NEW TAX ACT

WHY DIRECT TAX CODE ?
As part of its financial reforms process, the government

wanted to modernize and upgrade its direct tax laws.
The new tax code is expected to widen the tax base, end
unnecessary exemptions, moderate tax rates.
Tax rates will not be part of the budget presented to Parliament.

WHEN IT WILL COME INTO FORCE
DTC replaces the archaic Income Tax Act, 1961 and

Wealth Tax Act, 1957. It will come into effect from
April 01, 2012. First return of income under its norms
will be filed after March 31, 2013.
WHAT’S NEW IN DTC ?
• According to the new recommendations of the Code the new provisions are as follows:
•Tax for income between Rs.2 lakh – Rs.5 lakh: 10%

•Tax for income between Rs.5 lakh – Rs.10 lakh: 20%
•Tax for income over Rs. 10 lakh: 30%
Currently, income from Rs 1.6-5 lakh attracts 10 percent tax; from Rs 5-8 lakh, 20
percent and beyond Rs 8 lakh, 30 percent.
New due dates for Tax Returns:

Sl No Type Date First filing (under DTC)
1 Non-Business / Non-Corporate 30th June 30/06/2013
2 Others 31st August 31/08/2013

 Earlier Income Tax Act and Wealth tax Act (Covering Income Tax, TDS, DDT, FBT and
Wealth taxes) are abolished and single code of Tax, DTC in place.
 Concept of Assessment year and previous year is abolished. Only the “Financial Year”
terminology exists.
 Only status of “Non Resident” and “Resident of India” exits. The other status of “resident
but not ordinarily resident” goes away.
 Corporate tax has been kept at 30%.
 The limit for exemptions for salaried people is Rs. 2 lakh, while that for senior citizens is
Rs. 2.5 lakh.
 Perquisites given to employees should be included in salary income .
 Tax rates for companies should be reduced to 25 per cent for both domestic and
overseas companies.
 Foreign companies should pay an additional tax of 15 per cent as branch profit tax.
 Abolition of the controversial STT (but the Code also suggests reintroduction of tax on
long term capital gains on securities trading).
WILL IT BE REVENUE POSITIVE FOR THE FEDERAL
GOVERNMENT?
It has marginally lowered the tax burden for individuals and has
effectively left corporates with largely similar tax.
The government has evened out losses and gains.
Though DTC will result in an estimated revenue loss of Rs 53,172

crore in 2012-13 as gross tax collection from direct taxes will come
down from an estimated Rs 5.80 lakh crore to Rs 5.27 lakh crore.
Still new code will help shore up the tax GDP ratio significantly
from around the current 11 percent level.
WHY IS IT IMPORTANT FOR INDIAN FIRMS AND
FOREIGN INVESTORS?
Provide a system which takes into account increased cross border

M&As.
The new code is also expected to streamline tax rates and

administration for foreign institutional investors, for whom India is a
top destination.
Despite the crisis in the euro zone, capital flows have been robust
this year with an inflow of USD 8.5 billion so far.
WILL IT PROVIDE GREATER STABILITY
TO INVESTORS?
 The code aims to provide greater tax clarity and stability to

investors who want to invest in Indian projects and
companies.These officials have said the government would
not like to tinker with tax rates every year to provide a
greater degree of tax certainty to corporates, investors and
individuals.
WHAT WILL BE THE IMPACT ON INDIAN AND FOREIGN
CORPORATES?
The corporate tax rate has been reduced from 33.22% to 30%
for domestic companies. Foreign corporates today pay a higher
rate of tax.
 But whether a company pays more tax or less will also
depend on a key provision called the minimum alternate tax
(MAT).
 The MAT rate has now been increased from 18% to 20% in
the new code.
 No change in the rate of tax on distributed dividend.
IMPACT ON CAPITAL GAIN
 Long-term capital gains would continue to be eligible for a

100% deduction, and remain exempt from tax. This will
boost investment flow into capital markets.
 Short-term capital gains(taxable at 15.45%) would be

eligible for 50% deduction and thereafter taxed as per the
normal slab rates applicable from 1-4-2012.Effectively, the
tax under DTC would range between 5% and 15%,
depending on the tax bracket in which an individual falls.
Small and medium investors will gain substantially by way
of savings on taxes on short term gains(ranging from Rs.2
lacs to Rs.5 lacs).
IMPLICATIONS ON OVERSEAS INDIANS
Overseas Indians would now be severely restricted

with regard to their length of stay in India if they were
to avoid paying income tax on their global income.
 Now NRI is liable to pay tax on global income is he resides in
India in a particular year for a period or periods amounting to 60
days, down from the existing provision of 182 days in the existing
Income Tax Act.
 NRI resides in India for 365 days or more over a four-year period
has been retained in the proposed DTC.
 In addition, the DTC has also removed the 'Resident Not

Ordinarily Resident (RNOR)' category to simplify the tax laws,
the official said.
 Now, there will be only two categories, 'Resident' and 'Non-

Resident', the official added.
There is one good provision, though, for returning NRIs. An
exemption has been provided in case of income earned outside
India, if it is not derived from a business controlled from India,
in the financial year in which the returning NRI becomes an
Indian resident and the immediately succeeding financial year.
However, the benefit of the said exemption would be available,
only if such individual was a non-resident for nine years
immediately preceding the financial year in which he becomes
a resident.
IMPLICATIONS FOR HOUSEHOLD & SALARIED
PEOPLE
 Senior citizens benefit marginally
 Women would no longer be given a special status by the government

for a higher exemption
 Middle Class will continue to find purchasing a house a lucrative

option, as exemptions on interests on home loans will continue
 It will also give realtors some relief who are just emerging from a
depressed patch.
 There will be a marginal rise in savings as exemptions have been

increased for investment in approved funds and insurance schemes to
Rs 1.5 lakh in a year from Rs 1.2 lakh.
WEALTH TAX
 The Bill proposes exemption limit for chargeability of wealth
tax to Rs1 crore from the existing limit of Rs30 lakh under the
Act.
 The Re 1 crore limit is markedly low compared to the proposed

limit of Rs 50 crore.
Specified ‘unproductive assets’ will be subject to Wealth Tax. It

will be payable by all tax payers except non-profit organizations.
IMPLICATION ON COMPANIES
 As regards firms and companies, the relief is only removal of

surcharges and cesses which were even otherwise expected to be
temporary. The prevailing rate at 30 per cent will continue.
 Tax on distributed dividend by a company, will continue at 15 %.
 The new tax on branch profits would be 15 %.

INCOME FROM HOUSE PROPERTY
 The concept of fair market value for calculation of income from house property
has been done away with. This will simplify matters. Income from the letting of
house property will be computed on the basis of contractual rent.
 The Bill proposes to reduce the standard deduction on account of repairs and
maintenance from the existing 30% to 20% of gross rent.
 A notable omission is the deduction for service tax paid on rented commercial
property.
INCOME FROM SALARY
 Now the employer’s contribution to the approved superannuation fund is to be

exempt from tax without any cap.
 Reimbursement of medical expenses is exempt from tax up to Rs50,000 per
year.
 Exemption for HRA in respect of expenditure incurred on rent paid has been
introduced.
 However, the exemption available for leave travel allowance is proposed to be
scrapped.
 The exemption limits for gratuity, leave encashment and voluntary retirement
scheme is also specified.
EXEMPTIONS
•EEE system of taxation will continue, long-term savings instruments such

as contributions to provident funds, approved superannuation funds, life
insurance, gratuity funds, etc. will continue to be tax free.
•Exemption of interest up to Rs 1.5 lakh on housing loan.
•EEE (exempt-exempt-exempt) mode of taxation for insurance and pension

funds also maintained.
•Exemption on pension, Provident Fund and Gratuity Funds to be at Re.1

lakh, while Rs 50,000 exemption provided on pure insurance, including
health cover, and tuition fee payment.
Major Deductions applicable under Tax Incentives for
an individual:
1. Investments through PFRDA approved agencies (Max of 3 Lakhs)
2. Payment of tuition fees
3. Medical treatment
4. Health insurance
5. Donations
6. Interest on loan taken for higher education
7. Maintenance of a disabled dependent
8. Interest income on Govt bonds

OVERALL IMPLICATIONS OF DTC
 About overall implications of the DTC, one should not

over worry about tax implications as the government
has evened out losses and gains. That is, a hike in one
place would be offset at another, as no government
would want to be unpopular with the electorate. So the
process is a mere rationalization.
 Tax payers to take a broader view of things, “The word

‘income’ comes before ‘tax’. The idea should be income
and wealth creation. Tax is a secondary thing.”

 Because there will be firmness and transparency in the

tax structure, all in all, we will no longer wait for Union
Budget with such baited breath as the personal income
tax announcements will no longer be a part of the
Finance Bill and thus the FM’s speech.
 The tax rates have been reduced to some extent with

the hope of widening the base, but the changes seem
fairly cosmetic when considered in comparison with the
proposals which were considered in the original draft of
the DTC.
..….OUR SINCERE THANKS TO PROF. S.K. LAROIYA WITHOUT WHOSE
GUIDANCE WE WOULD NOT HAVE BEEN ABLE TO MAKE THIS
PRESENTATIONS.
THANKS YOU TO ALL

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DIRECT TAX CODE

NEW TAX ACT

As part of its financial reforms process, the government

Tax rates will not be part of the budget presented to Parliament.

DTC replaces the archaic Income Tax Act, 1961 and

•Tax for income between Rs.2 lakh – Rs.5 lakh: 10%

New due dates for Tax Returns:

1 Non-Business / Non-Corporate 30th June 30/06/2013

2 Others 31st August 31/08/2013

The government has evened out losses and gains.

Though DTC will result in an estimated revenue loss of Rs 53,172

Provide a system which takes into account increased cross border

The new code is also expected to streamline tax rates and

 The code aims to provide greater tax clarity and stability to

 Long-term capital gains would continue to be eligible for a

 Short-term capital gains(taxable at 15.45%) would be

Overseas Indians would now be severely restricted

 In addition, the DTC has also removed the 'Resident Not

 Now, there will be only two categories, 'Resident' and 'Non-

 Women would no longer be given a special status by the government

 Middle Class will continue to find purchasing a house a lucrative

 There will be a marginal rise in savings as exemptions have been

 The Re 1 crore limit is markedly low compared to the proposed

Specified ‘unproductive assets’ will be subject to Wealth Tax. It

 As regards firms and companies, the relief is only removal of

 Tax on distributed dividend by a company, will continue at 15 %.

 The new tax on branch profits would be 15 %.

 Now the employer’s contribution to the approved superannuation fund is to be

•EEE system of taxation will continue, long-term savings instruments such

•Exemption of interest up to Rs 1.5 lakh on housing loan.

•EEE (exempt-exempt-exempt) mode of taxation for insurance and pension

•Exemption on pension, Provident Fund and Gratuity Funds to be at Re.1

1. Investments through PFRDA approved agencies (Max of 3 Lakhs)

2. Payment of tuition fees

6. Interest on loan taken for higher education

7. Maintenance of a disabled dependent

8. Interest income on Govt bonds

 About overall implications of the DTC, one should not

 Tax payers to take a broader view of things, “The word

 Because there will be firmness and transparency in the

 The tax rates have been reduced to some extent with

THANKS YOU TO ALL

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