Structure of the Code:

The Code has been divided into 9 parts:

Part A
Part B

Income Tax
Dividend Distribution Tax

Part C
Part D
Part E

Tax on Distributed Income

Branch Profits Tax
Wealth Tax

Part F

Prevention of Abuse of the Code

(Transfer Pricing and GAAR)

Part G

Tax Management (Administration

etc)

Part H

General (PAN, TAN, Agreements

with foreign countries, notices etc)

Part I

Interpretation and Miscellaneous

The Direct Taxes Code, 2010:

319 Section
Schedules.
The DTC has

and

22

Definitions are contained in Section

314, which has 297 definitions.

The Direct Taxes Code, 2010:

Guide to the Schedules of the Code:
1
2

Rates of Income Tax

Rates of other taxes.

3
4

Rates for Deduction of tax at source

Rates for deduction of tax at source in the
case of non-resident deductee

5
6

Procedure for Recovery of Tax.

Income not included in total income (=Section
10)

Person, entity or Funds not liable to income

tax.
Computation
sources.
Computation of
of Income
Profits offrom
the special
Insurance

9
8

business.

10
11
12

13
14
15
16
17
18

Computation of profits of business of operating

a qualifying ship.
Profits of business of mineral oil or natural gas
Computation of profits of the business of
developing of an SEZ, manufacture or
production of article or things or providing of
any service by a unit established in an SEZ.
Computation of profits of specified business.
Determination of income on a presumptive
basis.
Depreciation.
Contributions or donations eligible for 175%
deduction.
Determination of cost of acquisition in certain
cases.
Minerals and group of associated minerals.

19
20
21
22

Approved provident, gratuity, superannuation

funds.
Computation of income attributable to a
controlled foreign company.
Orders appealable before Commissioner
(Appeals)
Deferred Revenue Expenditure Allowance
(NEW CONCEPT)

The Direct Taxes Code, 2010:

319 Clauses
Schedules.
The DTC has

and

22

Definitions are contained in Clause 314,

which has 297 definitions.

The Direct Taxes Code, 2010:

First Draft of the DTC was released in August 2009,
along with a Discussion Paper for public comments.
Revised Discussion Paper was released in June 2010.
Based on comments received, a Bill named Direct
Taxes Code, 2010 has been introduced in the
Parliament.
When enacted, The Code will replace the Income Tax
Act, 1961 and the Wealth Tax Act, 1957
The Code is proposed to come into force on 1-4-2012.
It extends to the whole of India.

Objects and Reasons:

The 1961 Act has undergone numerous revisions, not
less than 34 times by amendment Acts besides
amendments carried out using Finance Acts.
Due to this, the basic structure of the Act has become
over-burdened and the language, complex.
Concerns were raised by administrators, CAs and tax
payers.
The Govt. therefore had decided to revise,
consolidate and simplify the language and structure
of direct tax laws.
Further rationalization of tax rates (which have been
steadily decreasing over 25 years) may not be

Objects and Reasons (Contd):

Strategy for broadening tax base comprises of three
elements:
1. Minimize Exemptions- This will result in higher taxGDP ratio, enhance GDP growth since tax
exemptions distort allocative efficiency. This will
also improve equity, reduce compliance costs,
lower administrative burdens and discourage
corruption.
2. Remove ambiguity in law which facilitates
avoidance. It is necessary to undertake periodic
exercise of rewriting The Code in light of new
trends.
3. Checking of erosion of the tax base through tax

Interpretation of The Code:

DTC is NOT an attempt to improve the Income Tax
Act. Some assumptions which have held the ground
for many years have been discarded.
In drafting the Code, the CBDT has, to the extent
possible, started on a clean drafting slate.
It is advisable to read the Code without any
preconceived notions and, as far as possible, without
comparing with the provisions of the Act.
Let us examine the claims of the Discussion Paper
with an example.

Interpretation of The Code:

Proviso Sec. 17(2) (Definition of Perquisite) says that
nothing in this clause shall apply to- (v) any sum
paid by the employer in respect of any expenditure
actually incurred by the employee on his medical
treatment or treatment of any member of his family,
so, however that such sum does not exceed 15,000
rupees in the previous year
Definition of Perquisite under the Code Clause
314(191):
Perquisite does not include(v) Any sum paid by an employer in respect of any
expenditure incurred by an employee on medical
treatment of himself or his family members to the
extent that it does not exceed Rs. 50,000 in a
financial year.

Simplification of Law:
One cosmetic effort made by the Code to do away
with the Jungle and maze of words is to separate the
concepts of Previous Year and assessment year
with the unified concept of Financial year
Another example is that formulae have been used
instead of using phrases like shall bear the same
proportion as such and such bears to such and such,
as well as tabular and schedule based presentation.
Law remains as complex as before, with the added
effect of not being able to completely rely on
principles expounded under the Income Tax Act by
Courts and other authorities.
It is expected that litigations will continue unabated

Tax rates:
For Individuals, HUF:
Taxable Income

Income tax

Total Income does not exceed Rs. 200,000

Nil.

Total income between Rs. 200,000- Rs.

500,000 will be taxed at

10%

Total Income between Rs. 500,000 and Rs.

10,00,000 will be taxed at

20%

Income above Rs. 10,00,000 will be taxed at

30%

For resident individual who is above 65 years of age

during the financial year, the basic exemption is Rs.
250,000
No distinction made between male and female
assessees.

Tax Rates:
Companies will be taxed on the whole of total income
at 30%
Tax on book profits- MAT- 20%
Dividend Distribution tax by domestic company- 15%
Income distributed by Mutual Fund to unit holders of
equity oriented fund- 5%
Income distributed by life insurer to policy holders of
approved equity oriented life insurance scheme 5%
Wealth Tax at 1% of the amount by which net wealth
exceeds Rs. 1 crore.

Tax Rates:
Branch Profits tax on Foreign Companies- at 15% of
branch profits. (Newly introduced)
Foreign company shall be liable to branch profits tax
in respect of branch profits of a financial year. This is
in addition to income tax payable by the foreign
company.
Payable irrespective of whether branch profits are
remitted to head office abroad.
Branch profits shall be the income attributable,
directly or indirectly, to the P.E. or an immovable
property situated in India included in the total income
of the foreign company for the financial year, as
reduced by the amount of income tax payable on

Permanent Establishment:
P.E. means a fixed place of business through which
the busienss of a non-resident assessee is wholly or
partly carried on. It includes a place of management,
a branch, office, factory, workshop, sales outlet,
warehouse in relation to person providing storage
facilities for others, farm, mine, building site,
furnishing of services, installation or structure.
(Larger definition that what is in the Act)
P.E includes a person other than independent agent
who acts on behalf of the N.R assessee if he
1. Concludes contracts, unless activities are limited
to purchase of goods.
2. Maintains stock of goods in India and delivers
them.
3. Secures orders in India mainly or wholly for the

Permanent Establishment:
PE also includes the person acting in India on behalf
of an assessee engaged in insurance business
through whom the assessee collects premiums in
India and insures risks situated therein.
PE also includes a substantial equipment in India
which is being used by, for or under any contract with
the assessee.

Basic Concepts:
No more previous year and assessment year. Only
one term Financial year to be used.
Income will be taxed as per the provisions of the
Code as they stand on 1st April of that financial year.
Under the Act, income is taxed based on provisions
as they stand on the 1st day of assessment year.
Under the DTC, tax rates are specified in the
Schedules, therefore no annual Finance Bill. Rates will
be changed by amending Schedules to the Code
through Amendment Bill.
Assessee now also includes any person who files
return regardless of whether he was required to, any
person who is required to furnish information
under the Code, and any person to whom amount is

Basic Concepts:
For Individuals and HUF, the concept of Resident but
not ordinarily resident is proposed to be abolished.
However, even though the category will be abolished,
not ordinary residents will still enjoy exemption in
respect of their foreign sourced income.
Income deemed to accrue or arise in India u/s 9 of
the Act as regards salary, dividend, interest, royalty
and technical fees are retained in Clause 5 of the
Code. In addition, the code also includes:
1. Insurance premium shall be deemed to accrue or
arise in India if it is accrued from or payable by
any resident or non-resident in respect of
insurance covering any risk in India.
2. See Next Slide.

Basic Concepts:
Income accruing or arising will now include:
Income from transfer, outside India, of any share or
interest in a Foreign Company if at any time in 12
months preceding the transfer, the fair market value
of the assets in India, owned directly or indirectly, by
the company, represent atleast 50% of the Fair
Market Value of all assets owned by the company.
(This is a look through provision to be introduced so
that shares of a foreign company is artificially
unbundled to find out the assets that it represents)
This may have been specifically introduced to
counter the Hutch/Vodafone case, where a Foreign
Company(A) transferred shares in a foreign
company(B) to another foreign company(C). In case
of this case, foreign company (B)s assets almost
entire comprise of assets in India held indirectly for

Other points of comparison (Not exhaustive):

Point

Act

Code

Residenc
e of
compani
es

U/s 6(3), a
company is
treated as a
resident, if it is an
Indian company,
or if its control
and management
is situated
'wholly' in India.

Under cl. 4(3) of the Bill, a

company is treated as resident
if it is an Indian company, or if
its place of 'effective
management' at any time of
the year is in India. The test for
determining residence has been
altered and made broader.
'Place of effective management'
is defined under cl. 314(192) to
mean either the place where
the Board/executive directors of
a company make their
decisions or, in a case where
the board of directors routinely
approve the commercial and
strategic decisions made by the
executive directors or officers of
the company, the place where
such executive directors or
officers of the company perform

Other points of comparison (Not exhaustive):

Point

Act

Code

'Indian
company'

U/s 2(26), an Indian

company is one which is
formed and registered
under the Companies Act,
1956 or established by or
under a Central or State
Act. A Proviso requires the
registered/principal office
to be in India.

Under cl. 314(132), an Indian

company is a body corporate
which is registered or
established or constituted by
or under the Companies Act,
1956 or another State or
Central Act. The requirement
of the proviso is separately
included. The change in
language seems clarificatory.

Other points of comparison (Not exhaustive):

Point

Act

Code

Residence
of other
legal
persons

U/s 6(4), other legal

persons are treated as
residents in India in any
previous year in every
case, except where the
control and management of
his affairs is situated wholly
outside India.

Under cl. 4(4), every other

legal person is to be treated
as a resident in any financial
year, if the place of control
and management of its
affairs, at any time in the
year, is situated wholly, or
partly, in India. The language
seems to have changed, but
the test seems same if any
part of management is
carried out in India, the
person is a resident.

Other points of comparison (Not exhaustive):

Point

Act

Code

Scope of
total
income

Residents are taxed on

worldwide income; nonresidents on a sourcebased model

Essentially the same model,

but 'source' has been
widened as we will see a few
slides later.
In addition, cl. 3(3) provides
that any income which
accrues to a resident or is
received by a resident outside
India during the year shall be
included in the total income
of the resident, whether or
not such income has been
charged to tax outside India.

Other points of comparison (Not exhaustive):

Point

Act

Code

Deemed
accrual in
India

Section 9(1)(i): Through or

from any business
connection, property, or
asset/source in India, or
through the transfer of a
capital asset situate in
India. Where operations are
not carried on entirely in
India, only that income
which is reasonably
attributed to operations in
India is deemed to accrue
in India.

Cl. 5(1): The same four

categories apply it is
clarified that income arising
'through or from' all the 4
would be covered (as
opposed to the present
Section, where 'through or
from' qualifies the other 3
categories but the provision
only read 'through' the
transfer of a capital asset.
Business connection has been
defined in cl. 314(40) to
include a permanent
establishment. Definition of
PE has been discussed a few
slides earlier.