Provisions of DTC 2010 versus DTC 2009

QUESTION: Direct Taxes Code Bill was introduced in Parliament. How far is it different from the draft Code, 2009?

ANSWER: The Bill is proposed to be effective only from April 1, 2012, so as to cover the income of the financial year 2011-12. It will also go to the Parliamentary Committee before it is taken up by Parliament.

This is welcome because it will no longer be rushed through as it was earlier apprehended. There have been some material changes from the draft Code, 2009. The proposal for tax on gross assets has been dropped but the tax on branch profits will remain requiring reconciliation with Double Tax Avoidance Agreements.

The proposals for substantial reduction in tax rates and in slab revision proposed in the draft Code are now replaced by practical return to the existing rates admittedly prompted by the need for calibrating the rates with expected revenue even as had been indicated in the Revision Paper. Tax rates under the existing law, the draft Code and the Bill may be analysed in the accompanying chart.

Women will lose the right to the special exemption to which they are entitled to under the existing law as well as the proposal in the first draft Code.

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 as against 25 per cent in the earlier draft. There is no change in the rate of tax on distributed dividend by a company, which will continue at 15 per cent. Minimum Alternate Tax for companies will continue with the tax rate jacked up to 20 per cent from 15 per cent. The new tax on branch profits would be 15 per cent.

There are proposals for new levies on income distributed to holders of equity-oriented units of mutual funds and the amount distributed under approved equity-oriented life insurance schemes at 5 per cent. The proposed EET scheme in the draft Code does not find a place in the Bill so that outright deductions for savings now available under Sec. 80C will continue, while the EET scheme will be limited to present provisions under Sec. 80CCC and 80CCD.

Exemption now available for long-term capital gains on transfer of listed shares, where securities transaction tax is suffered, will continue despite the earlier proposal to the contrary. Other changes can be considered in due course