By K P C Rao, LLB, FCMA, FCS.,
CMA (USA)., FIPA (Australia)
Practicing Company Secretary
The draft Direct Taxes Code, 2013 was released on the Department of Income Tax website for comments on April 1, 2014. This is a revised version of the Direct Taxes Code Bill, 2010, which was introduced in Parliament on August 31, 2010, and thereafter, was referred to the Standing Committee on Finance. The Direct Taxes Code proposes to consolidate and amend the laws relating to direct taxes. Consequently, it replaces the Income Tax Act 1961 and the Wealth Tax Act, 1957.
The Direct Taxes Code, 2010 (DTC 2010) had proposed to widen tax slabs for individuals, and increase tax on companies. In addition, it had proposed to remove several deductions currently allowed for companies and retain deductions available to individuals. The Bill had also proposed the General Anti-Avoidance Rules (GAAR) to allow tax authorities to classify any arrangement as one entered into for evading taxes. The Bill will lapse with the dissolution of the 15th Lok Sabha.
In Direct Taxes Code, 2013 (DTC 2013), various recommendations of the Standing Committee, as well as recommendations of the Kelkar Committee on fiscal consolidation have been incorporated. Some of the changes made in the DTC 2013 are:
(1) The age of senior citizens is proposed to be relaxed from 65 years in DTC 2010 to 60 years in DTC 2013.
(2) GAAR in the DTC 2010 was discussed as one of the rules regarding avoidance of tax. However, in DTC 2013, more clarity and precision has been brought to the provisions. DTC 2013 includes the applicability of the GAAR, the impermissible avoidance agreements and the treatment of connected person etc. Importantly, the onus of proof is to rest with the tax authority invoking GAAR.
(3) For the purpose of wealth tax determination, DTC 2013 includes all assets as the base for wealth tax. The 2010 version had included only the unproductive assets for the levy of wealth tax.
(4) An additional tax of 10% (over the 15% dividend distribution tax) is proposed to be levied on recipients of dividend exceeding Rs one crore.
(5) A fourth slab for income tax may be introduced. Currently, the highest slab is for incomes in excess of Rs 10 lakh, which is taxed at 30%. The new slab will tax total income in excess of Rs 10 crore at 35%.