Indian Taxation System
Direct Tax
• Burden of tax is borne by
the payer himself
• E.g.: Income Tax, Wealth Tax
Indirect Tax
• Burden of tax is not
completely borned by the
payee & is passed on
• E.g. : VAT, Excise Duty,
Custom Duty, Service Tax
DIRECT TAX CODE
 About New Direct Tax Code 2009
• Finance Minister Pranab Mukherjee on10th August 2009 released the New Draft Direct
Tax Code.
• The draft, which is expected to radically change the tax structure. The finance minister
had in his budget promised to deliver a new code within 45 days and kept promise.
• Unveiling the new code, Home Minister P Chidambaram, with the finance
minister by his side, said he was confident that new code, when passed by the
Parliament, will be a huge improvement on the existing law. “It is a brand new
code written from scratch. It is not an amendment but a replacement of the
Income Tax, 1961,” he said, adding that it would promote entrepreneurship and
the thrust would be on “regulated free markets”.
What does it seek

The Direct Tax Code will replace

the existing Income Tax Act that
was enacted in 1961, which had
replaced an earlier legislation of
1922 enacted prior to the country's
independence
When will it be introduced

The government presented the

relevant bill during the winter session
of parliament, after considering and
incorporating, if seen fit, the opinions
on its provisions from the public. in
2011. The government hopes it will
become law
The main purpose

The new code will completely

overhaul and simplify the existing tax
proposals for not only individual tax
payers, but also corporate houses
and foreign residents
How will it help

The idea is to keep the provisions

simple so that even an average
taxpayer can understand the
language, than having to go to
chartered accountants and income
tax practitioners. It will also introduce
the concept of tax calculators.
Administrative reforms
The new code will also recast
the powers of the Central Board
of Direct Taxes, induce more
transparency in decision-making
and tune it to tax boards of
countries like the US, Canada
and Britain.
What can the public do

The finance ministry had

loaded on its website -
www.finmin.nic.in - the draft
direct tax code, a discussion
paper, a comment on the
code and what rating people
would like to give to it.
 General Provisions
• The Direct Tax Code(‘DTC’)2009 is to come into force on 1April, 2011 ,if
enacted
• The concept of previous year has been replaced with a new concept of
Financial year which inter alia means a period of 12 months commencing from
the 1st day of April
• Every person is liable to pay income-tax in respect of his total income for the
financial year at the rates/conditions specified in the Schedules to the DTC
• After allowing credit for pre-paid taxes(including foreign tax credits) Income
has been proposed to be classified into two broad groups :
a) Income from Ordinary Sources and
b) income from Special Sources.
 Types of Income
• Income from Ordinary Sources refers to:
- Income from employment
- Income from house property
- Income from business
- Capital Gains
- Income from Residuary Sources
• Income from Special Sources to include specified income of non-residents,
Winning from lotteries ,horse races , etc.
• Losses arising from Ordinary sources to be eligible for set off or carry forward
And set-off against income only from ordinary sources without any time limit.
Similar treatment for set off and carry forward of losses from Special sources.
 The salient features of the code
1. Single Code for direct taxes: All the direct taxes have been brought
under a single code and compliance procedures unified. This will
eventually pave the way for a single unified tax
2. Use of simple language
3. Reducing the scope for litigation:
4. Flexibility
5. Consolidation of provisions:
6. Elimination of regulatory functions
7. Providing stability
 Major Highlights of DTC 2009:

• Income Tax
• Change in nomenclature: A unified financial year term replaces
assessment year and previous year
• Rise in tax slabs: The 10 per cent tax bracket raised up to Rs 10
lakh, 20 per between Rs 10 and 25 lakh and 30 per cent for over Rs
25 lakh.
• Salary perks as part of income:  Would include perks like house
rent, leave travel allowance, medical imbursement
• Gratuity on change of jobs: Will be tax-exempt on change of jobs
only if it is invested in a retirement fund
 Major Highlights of DTC 2009:
• 80C limit: From Rs 1 lakh at present to Rs 3 lakh for a hindu undivided
family (HUF) or individual
• Exempt-Exempt-Tax (EET): New tax regime for all provident funds,
superannuation funds, life insurance and New Pension Scheme (NPS).
These investment to be taxed on withdrawal
• Housing Deduction: The deduction of Rs 1.5 lakh for housing loan
interest payment removed for a self-occupied residence
• Distinction Scrapped: The distinction between short- and long-term
capital gains tax scrapped
 Highlights of DTC
• Up to Rs 1.6 lakh: No tax
• 10 per cent tax for Rs 10 lakh income (Rs 1.2 lakh in hand)
• 20 per cent tax for Rs 25 lakh income (Rs 2.60 lakh more in hand)
• 30 per cent tax for income over Rs 25 lakh
• To raise deduction limits for savings up to Rs 3,00,000
• Wealth tax to be levied for wealth above Rs 50 crore
• Wealth tax should be reduced to 0.25% rather than 1%
• No tax deduction on interest payable on any government security
• Base year for calculation of cap gains tax moved to April 2000
• Wealth tax liability to be discharged by payment of pre-paid taxes
 DTC & Corporate Taxation
• Corporate Tax: Down from 30 per cent to 25 per cent
• Business losses can be carried forward indefinitely
• Area based incentives will be replaced with incentives on
investments
• MAT will be on gross assets as against book profits
 Penalties
Penalties&&Prosecution
Prosecution
• The Tax Code prescribes stiff penalties and prosecution for
non-compliance with the tax laws, it proposes that every tax
offense under the Code will be punishable by both
imprisonment and fine