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Highlights of Revised Discussion paper on DTC

Surender Gupta
Revised Direct Tax Code: MAT on Book Profit, Capital Gains as Ordinary Income, EEE for Retirement Benefits, GAAR Introduced. The revised discussion paper on the Direct Tax Code (DTC) outlines several key changes. Minimum Alternate Tax (MAT) will be based on 'Book Profit' rather than 'Gross Assets'. The EEE scheme will apply to certain retirement and insurance products, and retirement benefits will be exempt within limits. Rules for perquisite valuation will be established, and rent-free accommodation won't be taxed at market value. Capital gains will be treated as ordinary income, with specific rules for equity shares and other assets. Non-profit organizations won't need new registration, and their income will be exempt, although donors won't receive deductions. Wealth tax will apply to unproductive assets, and General Anti-Avoidance Rules will be implemented. (AI Summary)

(1) MAT will be calculated on 'Book Profit' as against the 'Value of Gross Assets'

(2) Salary -  Exempt Exempt Exempt (EEE) scheme will be applicable for GPF, PPF,  RPFs, Pension Scheme, Approved pure life insurance products and annuity schemes instead of EXEMPT EXEMPT TAX (EET)

(3) Retirement Benefits Account scheme not to be introduced

(4) Amount received under Gratuity, voluntary retirement scheme, commutation of encashment of leave will be exempt, subject to specified limits, for all employees

(5) Rules for valuation of perquisite to be made

(6) Rent free accommodation will not be taxed at market value

(7) House Property - Rent - Gross rent will not be computed at a presumptive rate of six per cent of the rateable value or cost of construction/acquisition.

(8) In case of house property which is not let out, the gross rent will be nil. 

(9) In case of self occupied property exemption upto 1.5 Lakhs will be allowed

(10) Capital Gains - Income under the head 'Capital Gains' will be considered as income from ordinary sources in case of all taxpayers including non-residents. 

(11) Listed equity shares or units of an equity oriented fund held more than one years will be computed at adjusted rate (a deduction will be allowed)

(12) Capital gains on other assets held for more than one year will be computed on indexed cost method basis (base year will be 1.4.2000)

(13) income arising on purchase and sale of securities by an FII will be deemed to be income chargeable under the head 'capital gains'

(14) NON-PROFIT ORGANISATIONS  (NPO) - No fresh registration is required for existing NPOs

(15) The income of a public religious institutions and income from charitable activities of the trust / institution will be exempt but donor will not be eligible for deduction on account of donation

(16) 15% (or 10%) carryforward of surplus will be allowed

(17) Donation from NPO to NPO will be considered as application of income

(18) Basic exemption limit will be provided to NPOs

(19) SEZ units -to protect profit linked deductions of units already operating in SEZs for the unexpired period will be incorporated.

(20) COMPANY  INCORPORATED OUTSIDE INDIA - Place of effective management' to be defined

(20) passive income earned by a foreign company which is controlled directly or indirectly by a resident in India will be taxable

(22) DTAA - DTAA will not have preferential status over the domestic law in the following circumstances:-   (i) when the General Anti Avoidance Rule is invoked, or  (ii) when Controlled Foreign Corporation provisions are invoked or  (iii) when Branch Profits Tax is levied. 

(23) Wealth Tax - wealth tax will be payable by all taxpayers except non-profit organizations on all unproductive assets

(24) GENERAL ANTI-AVOIDANCE RULE to be implemented with The forum of Dispute Resolution Panel (DRP)

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Income Tax
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