Amendments Proposed to Draft Direct Taxes Code

Legislation

Amendments Proposed to Draft Direct Taxes Code

Avinash - July 15, 2010 Comments

The draft Direct Taxes Code Bill seeks to consolidate and amend the law relating to all direct taxes and will replace the Income Tax Act, 1961. The draft Bill, along with a discussion paper, was released for public comments in August 2009.[1] Following inputs received, the government proposed revisions to the draft Bill in June 2010. The table below summarises these revisions. The government has not released the changes proposed in the form of a revised draft bill however, but as a new discussion paper. The note is based on this discussion paper.[2] The Code had proposed a number changes in the current direct tax regime, such as a minimum alternate tax (MAT) on companies’ assets (currently imposed on book profits), and the taxation of certain types of personal savings at the time they are withdrawn by an investor. Under the new amendments, some of these changes, such as MAT, have been reversed. Personal savings in specified instruments (such as a public provident fund) will now continue to remain tax-free at all times. The tax deduction on home loan interest payments, which was done away with by the Code, has now been restored. However, the discussion paper has not specified whether certain other changes proposed by the Code (such as a broadening of personal income tax slabs), will continue to apply.

Issue	Income Tax Act, 1961	Draft Direct Taxes Code (August 09)	Revisions Proposed (June 2010)
Minimum Alternate Tax (MAT)	MAT currently imposed at 18% of profits declared by companies to shareholders.	To be imposed on assets rather than profits of companies. Tax rate proposed at 2% (0.25% for banks)	MAT to be imposed on book profit as is the case currently. Rate not specified.
Personal Saving / retirement benefits	Certain personal savings, such as public provident funds, are not taxed at all.	Such savings to be taxed at the time of withdrawal by the investor.	Such savings to remain tax-exempt at all stages, as is the case currently.
Income from House Property	Taxable rent is higher of actual rent or ‘reasonable’ rent set by municipality(less specified deductions). Rent is nil for one self-occupied property.	Taxable rent is higher of actual rent or 6% of cost /value set by municipality (less specified deductions). Rent is nil for one self-occupied property.	Taxable rent is no longer presumed to be 6% in case of non-let out property. Tax deductions allowed on interest on loans taken to fund such property.
Interest on Home loans	Interest on home loans is tax deductible	Tax deductions on home loan interest not allowed.	Tax deductions for interest on loans allowed, as is currently the case.
Capital Gains	Long term and short term gains taxed at different rates.	Distinction between long and short term capital gains removed and taxed at the applicable rate; Securities Transaction Tax done away with.	Equity shares/mutual funds held for more than a year to be taxed at an applicable rate, after deduction of specified percentage of capital gains. No deductions allowed for investment assets held for less than a year. Securities Transaction tax to be ‘calibrated’ based on new regime. Income on securities trading of FIIs to be classified as capital gains and not business income.
Non-profit Organisations	Applies to organizations set up for ‘charitable purposes’. Taxed (at 15% of surplus) only if expenditure is less than 85% of income.	To apply to organizations carrying on ‘permitted welfare activities’. To be taxed at 15% of income which remains unspent at the end of the year. This surplus is to be calculated on the basis of cash accounting principles.	Definition of ‘charitable purpose’ to be retained, as is the case currently. Exemption limit to be given and surplus in excess of this will be taxed. Up to 15% of surplus / 10% of gross receipts can be carried forward; to be used within 3 years.
Units in Special Economic Zones	Tax breaks allowed for developers of Special Economic Zones and units in such zones.	Tax breaks to be done away with; developers currently availing of such benefits allowed to enjoy benefits for the term promised (‘grandfathering’).	Grandfathering of exemptions allowed for units in SEZs as well as developers.
Non-resident Companies	Companies are residents if they are Indian companies or are controlled and managed wholly out of India.	Companies are resident if their place of control and management is situated wholly or partly in India, at any time in the year. The Bill does not define ‘partly’	Companies are resident if ‘place of effective management’ is in India i.e. place where board make their decisions/ where officers or executives perform their functions.
Double Taxation Avoidance Agreements	In case of conflict between provisions of the Act, and those in a tax agreement with another country, provisions which are more beneficial to the taxpayer shall apply	The provision which comes into force at a later date shall prevail. Thus provisions of the Code would override those of existing tax agreements.	Provisions which more beneficial shall apply, as is the case currently. However, tax agreements will not prevail if anti-avoidance rule is used, or in case of certain provisions which apply to foreign companies.
General Anti-Avoidance Rule	No provision	Commissioner of Income Tax can declare any arrangement by a taxpayer as ‘impermissible’, if in his judgement, its main purpose was to have obtained a tax benefit.	CBDT to issue guidelines as to when GAAR can be invoked; GAAR to be invoked only in cases of tax avoidance beyond a specified limit; disputes can be taken to Dispute Resolution Panel.
Wealth Tax	Charged at 1% of net wealth above Rs 15 lakh	To be charged at 0.25% on net wealth above Rs 50 crore; scope of taxable wealth widened to cover financial assets.	Wealth tax to be levied ‘broadly on same lines’ as Wealth Tax Act, 1957. Specified unproductive assets to be subject to wealth tax; nonprofit organizations to be exempt. Tax rate and exemption limit not specified.
Source: Income Tax Act, 1961, Draft Direct Taxes Code Bill (August 2009), New Discussion Paper (June 2010), PRS

[1] See PRS Legislative Brief on Draft Direct Taxes Code (version of August 2009) at http://prsindia.org/index.php?name=Sections&id=6 [2] Available at http://finmin.nic.in/Dtcode/index.html

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Explainer: The Right to Information (Amendment) Bill, 2019

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Roshni Sinha - July 19, 2019 Comments

The Right to Information (Amendment) Bill, 2019 that amends the Right to Information Act, 2005 was introduced in Lok Sabha today.

What does the RTI Act do?

Under the RTI Act, 2005, Public Authorities are required to make disclosures on various aspects of their structure and functioning. This includes: (i) disclosure on their organisation, functions, and structure, (ii) powers and duties of its officers and employees, and (iii) financial information. The intent of such suo moto disclosures is that the public should need minimum recourse through the Act to obtain such information. If such information is not made available, citizens have the right to request for it from the Authorities. This may include information in the form of documents, files, or electronic records under the control of the Public Authority. The intent behind the enactment of the Act is to promote transparency and accountability in the working of Public Authorities.

Who is included in the ambit of ‘Public Authorities’?

‘Public Authorities’ include bodies of self-government established under the Constitution, or under any law or government notification. For instance, these include Ministries, public sector undertakings, and regulators. It also includes any entities owned, controlled or substantially financed and non-government organizations substantially financed directly or indirectly by funds provided by the government.

How is the right to information enforced under the Act?

The Act has established a three tier structure for enforcing the right to information guaranteed under the Act.

Public Authorities designate some of their officers as Public Information Officers. The first request for information goes to Central/State Assistant Public Information Officer and Central/State Public Information Officer, designated by the Public Authorities. These Officers are required to provide information to an RTI applicant within 30 days of the request. Appeals from their decisions go to an Appellate Authority. Appeals against the order of the Appellate Authority go to the State Information Commission or the Central Information Commission. These Information Commissions consists of a Chief Information Commissioner, and up to 10 Information Commissioners.

What does the Right to Information (Amendment) Bill, 2019 propose?

The Bill changes the terms and conditions of service of the CIC and Information Commissioners at the centre and in states. Table 1 below compares the provisions of the Act and the Bill.

Table 1: Comparison of the provisions of the Right to Information Act, 2005 and the Right to Information (Amendment) Bill, 2019

Provision	RTI Act, 2005	RTI (Amendment) Bill, 2019
Term	The Chief Information Commissioner (CIC) and Information Commissioners (ICs) (at the central and state level) will hold office for a term of five years.	The Bill removes this provision and states that the central government will notify the term of office for the CIC and the ICs.
Quantum of Salary	The salary of the CIC and ICs (at the central level) will be equivalent to the salary paid to the Chief Election Commissioner and Election Commissioners, respectively. Similarly, the salary of the CIC and ICs (at the state level) will be equivalent to the salary paid to the Election Commissioners and the Chief Secretary to the state government, respectively.	The Bill removes these provisions and states that the salaries, allowances, and other terms and conditions of service of the central and state CIC and ICs will be determined by the central government.
Deductions in Salary	The Act states that at the time of the appointment of the CIC and ICs (at the central and state level), if they are receiving pension or any other retirement benefits for previous government service, their salaries will be reduced by an amount equal to the pension. Previous government service includes service under: (i) the central government, (ii) state government, (iii) corporation established under a central or state law, and (iv) company owned or controlled by the central or state government.	The Bill removes these provisions.

Sources: Right to Information Act, 2005; Right to Information (Amendment) Bill, 2019; PRS.

Understanding the AERA (Amendment) Bill, 2019

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Prachee Mishra - July 19, 2019 Comments

Earlier this week, Rajya Sabha passed the Airports Economic Regulatory Authority of India (Amendment) Bill, 2019, and the Bill is now pending in Lok Sabha. The Bill amends the Airports Economic Regulatory Authority of India Act, 2008. The Act established the Airports Economic Regulatory Authority of India (AERA). AERA regulates tariffs and other charges for aeronautical services provided at civilian airports with annual traffic above 15 lakh passengers. It also monitors the performance standard of services across these airports. In this post, we explain the amendments that the Bill seeks to bring in and some of the issues around the functioning of the regulator.

Why was AERA created, and what is its role?

Few years back, private players started operating civilian airports. Typically, airports run the risk of becoming a monopoly because cities usually have one civilian airport which controls all aeronautical services in that area. To ensure that private airport operators do not misuse their monopoly, the need for an independent tariff regulator in the airport sector was felt. Consequently, the Airports Economic Regulatory Authority of India Act, 2008 (AERA Act) was passed which set up AERA.

AERA regulates tariffs and other charges (development fee and passenger service fee) for aeronautical services (air traffic management, landing and parking of aircraft, ground handling services) at major airports. Major airports include civilian airports with annual traffic above 15 lakh passengers. In 2018-19, there were 32 such airports (see Table 1). As of June 2019, 27 of these are being regulated by AERA (AERA also regulates tariffs at the Kannur airport which was used by 89,127 passengers in 2018-19). For the remaining airports, tariffs are determined by the Airports Authority of India (AAI), which is a body under the Ministry of Civil Aviation that also operates airports.

What changes are being proposed in the Bill?

The Bill seeks to do two things:

Definition of major airports: Currently, the AERA Act defines a major airport as one with annual passenger traffic over 15 lakh, or any other airports as notified by the central government. The Bill increases the threshold of annual passenger traffic for major airports to over 35 lakh.

Tariff determination by AERA: Under the Act, AERA is responsible for determining the: (i) tariff for aeronautical services every five years, (ii) development fees, and (iii) passengers service fee. It can also amend the tariffs in the interim period. The Bill adds that AERA will not determine: (i) tariff, (ii) tariff structures, or (iii) development fees, in certain cases. These cases include those where such tariff amounts were a part of the bid document on the basis of which the airport operations were awarded. AERA will be consulted (by the concessioning authority, the Ministry of Civil Aviation) before incorporating such tariffs in the bid document, and such tariffs must be notified.

Why is the Act getting amended?

The Statement of Objects and Reasons of the Bill states that the exponential growth of the sector has put tremendous pressure on AERA, while its resources are limited. Therefore, if too many airports come under the purview of AERA, it will not be able to perform its functions efficiently. If the challenge for AERA is availability of limited resources, the question is whether this problem may be resolved by reducing its jurisdiction (as the Bill is doing), or by improving its capacity.

Will the proposed amendments strengthen the role of the regulator?

When AERA was created in 2008, there were 11 airports with annual passenger traffic over 15 lakh. With increase in passenger traffic across airports, currently 32 airports are above this threshold. The Bill increases the threshold of annual passenger traffic for major airports to over 35 lakh. With this increase in threshold, 16 airports will be regulated by AERA. It may be argued that instead of strengthening the role of the regulator, its purview is being reduced.

Before AERA was set up, the Airports Authority of India (AAI) fixed the aeronautical charges for the airports under its control and prescribed performance standards for all airports and monitored them. Various committees had noted that AAI performed the role of airport operator as well as the regulator, which resulted in conflict of interest. Further, there was a natural monopoly in airports and air traffic control. In order to regulate the growing competition in the airline industry, and to provide a level playing field among different categories of airports, AERA was set up. During the deliberations of the Standing Committee examining the AERA Bill, 2007, the Ministry of Civil Aviation had noted that AERA should regulate tariff and monitor performance standards only at major airports. Depending upon future developments in the sector, other functions could be subsequently assigned to the regulator.

How would the Bill affect the regulatory regime?

Currently, there are 32 major airports (annual traffic above 15 lakh), and AERA regulates tariffs at 27 of these. As per the Bill, AERA will regulate 16 major airports (annual traffic above 35 lakh). The remaining 16 airports will be regulated by AAI. Till 2030-31, air traffic in the country is expected to grow at an average annual rate of 10-11%. This implies that in a few years, the traffic at the other 16 airports will increase to over 35 lakh and they will again fall under the purview of AERA. This may lead to constant changes in the regulatory regime at these airports. The table below provides the current list of major airports:

Table 1: List of major airports in India (as on March 2019)

Airports with annual traffic above 35 lakh			Airports with annual traffic between 15 and 35 lakh
Ahmedabad	Goa	Mumbai	Amritsar	Madurai*	Srinagar
Bengaluru	Guwahati	Patna	Bagdogra	Mangalore	Trichy*
Bhubaneswar	Hyderabad	Pune	Calicut	Nagpur	Varanasi
Chennai	Jaipur	Thiruvananthapuram	Chandigarh	Port Blair*	Vishakhapatnam
Cochin	Kolkata		Coimbatore	Raipur*
Delhi	Lucknow		Indore	Ranchi*

* - AERA does not regulate tariffs at these airports currently.

Sources: AAI Traffic News; AERA website; PRS.

Amendments Proposed to Draft Direct Taxes Code

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