THE TAX CODE
The government has just released a revised discussion paper on the Direct Taxes Code, says ADVOCATE RAJAN R. HIRANANDANI
The Direct Taxes Code has been under discussion since August 2009, and on June 15, 2010, the government released a Revised Discussion Paper. This is open for public comments upto 30.6.2010. After that the Direct Taxes Code will be finalised and thereafter a Bill may be brought before the Parliament. After the Code becomes law, then save as otherwise provided in the Code, it shall come into force from 1.4.2011. Some of the changes proposed to the Code as per the Revised Discussion Paper especially relating to immovable property are briefly as under:
INCOME FROM HOUSE PROPERTY
Income from house property shall be gross rent less specified deductions. As per the Code, gross rent was to be the higher of the amount of contractual rent for the financial year and the presumptive rent calculated @ 6% per annum of the ratable value fixed by the local authority. However after considering the feedback, it is now proposed that gross rent will be the amount of rent received or receivable for the financial year. Gross rent will not be computed at presumptive rent of 6% of the ratable value. In case of house property which is not let out, the gross rent will be nil. However, in case of any one house property which has not been let out, an individual or HUF will be eligible for deduction on the amount of interest on capital borrowed for acquisition or construction of such house property subject to a ceiling of Rs. 1.5 lakhs from the gross total income. Other deductions from the gross rent such as amount of taxes levied by a local authority if actually paid and tax on services and deduction of 20% of the gross rent towards repairs and maintenance have not been modified.
Income under the head Capital Gains will be considered as income from ordinary sources in case of all taxpayers including non-residents and shall be taxed at the rate applicable to that taxpayer. For taxation of Capital Gains arising from transfer of investment assets held for more than one year (other than listed equity shares or units of equity oriented funds), the base date for determining the cost of acquisition will now be shifted from 1.4.1981 to 1.4.2000. The Capital Gains will be computed after indexation, taking the base date as 1.4.2000. The Capital Gains on such assets will be included in the total income of the person and will be taxed at the applicable rate. The capital gain arising from the transfer of any investment assets held for less than one year from the end of financial year in which it is acquired will be computed without any specified deduction or indexation.
As per the Code assets chargeable to wealth tax meant all assets including financial assets and deemed assets as reduced by exempted assets. As per the revised discussion paper, productive assets are to be exempted from wealth tax as is the case currently. Further financial assets may be exempted as it is felt that tax on financial assets will be harsh as they are presently exempt. The threshold limit of Rs. 50 crores for levying of wealth tax is likely to be reduced as the same is found to be too high. It seems that by and large the wealth tax will be levied on the same lines as is provided for currently, i.e. as in the Wealth Tax Act, 1957. Therefore certain unproductive assets will be subject to wealth tax. It will be payable by all taxpayers except non-profit organisations. The rate of tax on net wealth exceeding the threshold limit was proposed at 0.25% in the Code, the same has not been touched upon in the Revised Discussion Paper.