The draft Direct Taxes Code (DTC) along with a Discussion Paper was released in August, 2009 for public comments. Since then, a number of valuable inputs on the proposals outlined in these documents have been received from a large number of organisations and individuals. These inputs have been examined and the major issues on which various stakeholders have given their views have been identified. This Revised Discussion Paper addresses these major issues. There are a number of other issues which have been raised in the public feedback, which, though not part of this Discussion Paper, will be considered while finalising the Bill for introduction in Parliament. The issues which this Revised Discussion Paper addresses are:
- Minimum Alternate Tax (MAT) – Gross assets vis-a-vis book profit.
- Tax treatment of savings – Exempt Exempt Tax (EET) vis-a-vis Exempt Exempt Exempt (EEE) basis.
- Taxation of income from employment – Retirement benefits and perquisites.
- Taxation of income from house property.
- Taxation of capital gains
- Taxation of non-profit organisations
- Special Economic Zones – Taxation of existing units
- Concept of Residence in the case of a company incorporated outside India.
- Double Taxation Avoidance Agreement (DTAA) vis-a-vis domestic law.
- Wealth Tax.
- General Anti Avoidance Rule (GAAR).
Paragraph 1 in each Chapter describes the proposals in the DTC and Discussion Paper, paragraph 2 highlights the issues and concerns raised and paragraph 3 details the revised proposals in response to these concerns.
2. It had been stated in the first Discussion Paper that the Government would consider calibrating the rates of tax in the light of the response and comments received on the scope of the tax base discussed in the Discussion Paper.
The proposals in this Revised Discussion Paper would lead to a reduction in the tax base proposed in the DTC. The indicative tax slabs and tax rates and monetary limits for exemptions and deductions proposed in the DTC will, therefore, be calibrated accordingly while finalising the legislation.
Responses to the Revised Discussion Paper should be sent online through the link provided at these websites or at the following e-mail address: directtaxescode-rev at nic.in. Responses are solicited upto 30th June, 2010.
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- Direct Tax Code 2011 Cleared by Cabinet
- Revised Draft Tax Code Favours Equity MFs Over Ulips
- Draft of Direct Tax Code Released by FM
- Direct Tax Code : Tax on Saving Withdrawals : EEE would be EET.
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There are many cases where the tax payer has invested in savings instruments like endowment policies and ULIPs out of his income without availing any tax exemption at the time of investment. For example, where the amount invested was beyond the ceiling prescribed by sections 88/80C of the Income Tax Act, 1961, no tax exemption would have been availed. The maturity proceeds of such instruments are presently wholly exempt under section 10(10D) of the Income Tax Act, 1961 irrespective of whether for the investments made therein exemption was availed or not at the time of investment. Even after introduction of DTC, further investments may have to be made according to the terms of such instruments.
Further, after introduction of DTC, a tax payer may invest in new savings instruments where no exemption is available at the time of investment.
In all such cases, at the time of withdrawal/maturity, it would be unreasonable to tax the investment which was made out of funds on which no exemption was availed at the time of investment, as it would result in double taxation of the same income.
DTC should therefore also take care of the following situations: –
(i) In respect of instruments obtained before the commencement of DTC having EEE status, investments made both before and after the commencement of DTC should enjoy EEE status, whether or not the tax payer has availed tax exemption at the time of investment.
(ii) Investments in new instruments obtained after the commencement of DTC, which will not enjoy EEE status under DTC, should not be taxed at the time of withdrawal/maturity having regard to social conditions in India.
(iii) In any event, in order to avoid double taxation, at the time of withdrawal/maturity there should be no taxation of the amount invested in such instruments without availing any tax exemption at the time of investment.