ET Bureau
The government has retained the form, but abandoned the spirit of the Direct Taxes Code (DTC) to have a simple, clean tax system without exemptions.
ET decodes the implications of DTC on income from house property, capital gains and the new tax treatment of savings.
The DTC has proposed contributions up to Rs 3 lakh in a year (both by employer and employee) to any account maintained by a permitted savings intermediary be exempt from tax, and would remain untaxed if it remained in that account. Withdrawals are to be included in income from residuary sources, and taxed accordingly.
Existing schemes are to be grandfathered. Since the switching over to complete exempt-exempt-exempt (EEE) method of taxation is seen to involve administrative, logistical and technological challenges, the revised discussion paper proposed to continue with EET for specified instruments till further notice.
The proposal for introducing Retirement Benefits Accounts scheme also shelved for the same reason. Difficulty in putting in place a universal social security benefits tilted the balance.
The DTC had proposed presumptive basis for calculating notional rent from house property (at the rate of 6%) with reference to cost of construction/acquisition. It has also proposed to disallow deductions on interest paid on loans for self-occupied houses. Now, rent received/receivable in a year will be gross rent.
No presumptive basis to be used for calculation. Deduction on interest paid on loan taken for construction/acquisition will be allowed for one house that has not be let out, subject to overall limit of Rs 1.5 lakh.
The DTC had proposed to MAT at the rate of 0.25% on the value of gross assets in the case of banking cos and at the rate of 2% for all other companies.
Carry forward for claiming tax credits in subsequent years was not to be allowed. Since this creates problems for loss-making companies and companies with long gestation period, the revised discussion paper has proposed to use book profit as the basis.
The Code sought to eliminate the distinction between shortterm investment and long-term investment on the basis on the length of the holding period.
The gains were to be included in the total income of the financial year in which the investment was transferred, and subject to tax at applicable marginal rate for residents and at 30% for non-residents. DTC had also proposed abolishing Securities Transactions Tax. Capital Gains Savings Scheme was also envisaged, to allow capital gains to be deposited in that scheme and postpone tax liability.
The revised discussion paper says that capital gains will be considered as income from ordinary sources in case of all taxpayers , including non-residents at the rate applicable to that taxpayer.
Capital gains on investment assets (equities and units of equity oriented funds) held for more than a year to be computed after deducting a specified percentage, without indexation , and added to total income of the taxpayer.
The scheme will be beneficial for those in lower income groups. Capital gains on asset held for less than a year from the end of the financial year in which it is acquired to be computed without specified deduction or indexation.
Proposal for Capital Gains Savings Scheme dropped as it is difficult to administer. STT to stay, but to be caliberated. Income of FIIs from trading in securities to be deemed as income chargeable under the head of capital gains. No TDS to be deducted on capital gains of FIIs.
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