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assets (currently imposed on book profits), and the taxation of certain types of personal savings at the time they are withdrawn by an investor.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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Understanding recent amendments to the Arms Act, 1959

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Rohin Gerg - December 5, 2019 Comments

The Arms (Amendment) Bill, 2019 was introduced in Lok Sabha recently and is scheduled to be passed in this Winter Session. The Bill amends the Arms Act, 1959 which deals with the regulation of arms in India. The Act defines arms to include firearms, swords, and anti-aircraft missiles. The Statement of Objects and Reasons of the Bill noted that law enforcement agencies have indicated a growing connection between the possession of illegal firearms and criminal activities. In this context, the Bill seeks to reduce the number of firearms allowed per person, and increases punishments for certain offences under the Act. The Bill also introduces new categories of offences. In this post, we explain key provisions of the Bill.

How many firearms are allowed per person?

The Arms Act, 1959 allows a person to have three licenced firearms. The Bill proposes to reduce this to one firearm per person. This would also include any firearms that may have been given as inheritance or as an heirloom. Excess firearms must be deposited at the nearest police station or licensed arms dealer within one year of the passing of the Bill. The Bill also extends the duration of a licence from three years to five years.

Note that in 2017, 63,219 firearms were seized from across India under the Arms Act, 1959. Out of these, only 3,525 (5.5%) were licenced firearms. Further, 36,292 cases involving firearms were registered under the Act in 2017, of which only 419 (1.1%) cases involved licenced firearms. [1] This trend persisted even at the level of specific crimes, where only 8.5% of the murders committed using firearms involved licenced firearms. [2]

What changes are being made to existing offences?

Presently, the Act bans manufacture, sale, use, transfer, conversion, testing or proofing of firearms without license. The Bill additionally prohibits obtaining or procuring un-licensed firearms, and the conversion of one category of firearms to another without a license. The latter includes any modifications done to enhance the performance of a firearm.

The Bill also proposes increased punishments for several existing offences. For example, the Act specifies the punishment for: (i) dealing in un-licensed firearms, including their manufacture, procurement, sale, transfer, conversion, (ii) the shortening or conversion of a firearm without a licence, and (iii) import or export of banned firearms. The punishment for these offences currently is between three years and seven years, along with a fine. The Bill increases the minimum punishment to seven years and the maximum to life imprisonment.

The Act also punishes dealing in prohibited firearms (such as automatic and semi-automatic assault rifles) without a license, with imprisonment between seven years and life imprisonment, along with fine. The Bill increases the minimum punishment from seven years to 10 years. Additionally, the punishment for cases in which the usage of prohibited arms results in the death of a person has been revised. The punishment has been updated from the existing punishment of death penalty to allow for death penalty or life imprisonment, along with a fine.

Are there any new offences being introduced?

The Bill adds certain news offences. For example, forcefully taking a firearm from police or armed forces has been made a crime under the Bill. The punishment for doing so is imprisonment between 10 years and life imprisonment, along with a fine. Additionally, the Bill punishes the negligent use of firearms, such as celebratory gunfire during weddings or religious ceremonies which endanger human life or personal safety of others. The proposed punishment in this case is imprisonment of up to two years, or a fine of up to one lakh rupees, or both.

The Bill also adds a definition of ‘illicit trafficking’. It is defined to include the trade, acquisition, sale of firearms or ammunitions into or out of India where the firearms are either not marked as per the Act or violate the provisions of the Act. The Bill makes illicit trafficking punishable with imprisonment between 10 years and life, along with a fine.

Does the Bill address issues of organised crime?

The Bill also introduces a definition of ‘organised crime’. ‘Organised crime’ has been defined as continued unlawful activity by a person, either as a member of a syndicate or on its behalf, by using unlawful means, such as violence or coercion, to gain economic or other benefits. An organised crime syndicate refers to two or more persons committing organised crime.

The Bill introduces harsher punishments for members of an organised crime syndicate. For example, for the possession of an unlicensed firearm, the minimum term for an individual would be seven years, extendable to life imprisonment and liable to a fine. However, the possession of unlicensed firearms by a member of a syndicate will be punishable with imprisonment between 10 years and life, along with a fine. This increased punishment also applies to non-members contravening provisions of the Act on behalf of a syndicate.

[1] Crime in India 2017, National Crime Records Bureau, October 21, 2019, http://ncrb.gov.in/StatPublications/CII/CII2017/pdfs/CII2017-Full.pdf.

[2] Crime in India 2016, National Crime Records Bureau, October 10, 2017, http://ncrb.gov.in/StatPublications/CII/CII2016/pdfs/NEWPDFs/Crime%20in%20India%20-%202016%20Complete%20PDF%20291117.pdf.

Tenure and salaries of CIC and ICs under the Right to Information Rules, 2019

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Anya Bharat Ram - October 29, 2019 Comments

The Right to Information (Amendment) Act, 2019 amended the Right to Information Act, 2005. The RTI Act, 2005 specified the tenure, terms of service and salaries of the Chief Information Commissioner (CIC) and Information Commissioners (ICs) at the central and state levels, in the parent law. The RTI (Amendment) Act, 2019 removed these provisions and stated that the central government will notify the term and quantum of salary through rules.[1]^,[2]

The Right to Information Rules, 2019 were notified on October 24, 2019.[3] These rules set out the tenure, terms of service and salaries of the CIC and ICs at the state and central levels. Table 1 compares the provisions related to the tenure and salary of the CIC and ICs under the Right to Information Act, 2005 and the Right to Information Rules, 2019

Table 1: Comparison of the provisions of the Right to Information Act, 2005 and the Right to Information Rules, 2019

Provision

RTI Act, 2005

RTI Rules, 2019

Term

The CIC and ICs (at the central and state level) will hold office for a term of five years.

The CIC and ICs (at the central and state level) will hold office for a term of three years.

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 (Rs 2,50,000 per month)

Similarly, the salary of the CIC and ICs (at the state level) will be equivalent to the salary paid to the Election Commissioners (Rs 2,50,000 per month) and the Chief Secretary to the state government (Rs 2,25,000 per month), respectively.

The CIC and ICs (at the central level) shall receive a pay of Rs. 2,50,000 and Rs. 2,25,000 per month, respectively.

CICs and ICs (at the state level) shall receive a pay of Rs. 2,25,000 per month.

Source: The Right to Information (Term of Office, Salaries, Allowances and Other Terms and Conditions of Service of Chief Information Commissioner, Information Commissioners in the Central Information Commission, State Chief Information Commissioner and State Information Commissioners in the State Information Commission) Rules, 2019; The High Court and the Supreme Court Judges (Salaries and Conditions of Service) Amendment Act, 2017; Indian Administrative Services (Pay) Rules, 2016; PRS.

[1] Right to Information Act, 2005, https://rti.gov.in/rti-act.pdf.

[2] Right to Information (Amendment Act), 2019, file:///C:/Users/Dell/Downloads/The%20Right%20to%20Information%20(Amendment)%20Bill,%202019%20Text.pdf.

[3] The Right to Information (Term of Office, Salaries, Allowances and Other Terms and Conditions of Service of Chief Information Commissioner, Information Commissioners in the Central Information Commission, State Chief Information Commissioner and State Information Commissioners in the State Information Commission) Rules, 2019, http://egazette.nic.in/WriteReadData/2019/213438.pdf.

Amendments Proposed to Draft Direct Taxes Code

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