New principles / concepts introduced in the Code

Tax rates mentioned in Schedule to the Code

Under the Code, all rates of taxes are proposed to be prescribed in the First to the  Fourth Schedule to the Code itself. This obviates the need for an annual Finance Bill if, there is no proposal to change the tax rates.  The changes in  the  rates,  if  any,  will  be  done  through  appropriate  amendments  to  the Schedule brought before Parliament in the form of  an Amendment Bill.    Other amendments to the Code will also be through amendment bills.

DTC- CASE FOR REMOVING EXEMPTIONS AND DEDUCTIONS

Huge amount of revenue is lost to the exchequer by way of tax  exemptions  and  deductions,  which  aggregated  to  more  than  Rs.1,50,000  crores. The  Department  have  submitted  that  the  revenue foregone  in  respect of  corporate  income  tax during  the  year  2009-10 increased to Rs. 79,554 crores, while the same for personal income tax was  Rs.  40,929  crores.         Revenue  foregone  on  account  of  direct  tax incentives / deduction given to export promotion schemes etc. amounted to a whopping Rs. 30,000 crores and more during this period.  Facts are so  evident  that  it  requires  no  over-stating  that  tax  concessions  and exemptions  provided  in  general  have  been  huge  and   phenomenal, amounting to more than half of the total direct tax collections in 2009-10. If the aggregate exemptions in both direct and indirect taxes is taken into account, it works out to a massive Rs. 5,02,299 crore (2009-10), which is almost 80% of the total revenue collections.  Such exemptions have been increasing, leaving an adverse impact upon revenue buoyancy.

International Tax Practices incorporated in DTC

Residence   of    company    to    be    based    on    Place    of    effective management

 Place of effective management‘ is an internationally recognized concept for   determination  of  residence  of  a  company  incorporated  in  a  foreign jurisdiction.       Most of our tax treaties recognize the concept of ‗place of effective management‘ for determination of residence of a company as a tie-breaker rule for avoidance of double taxation. It is an internationally accepted principle that the place of effective management is the place where  key management and commercial decisions that are necessary for the conduct of the entity‘s business as a whole are, in substance, made.

Structural Comparison of DTC

Income Tax Act comprises 23 Chapters,656 sections, 14 schedules
Wealth tax Act comprises 8 chapters and 47 sections
DTC 2010 comprises 22 chapters, 319 clauses, 22 schedules

Salient Features of DTC

            The  salient  features  of  the  code  are  as follows:

(i)         It consolidates and integrates all direct tax laws and replaces both the Income  Tax  Act,  1961  and  the  Wealth  Tax  Act,  1957  by  a  single legislation.

(ii)        It  simplifies  the  language  of  the  legislation.  The  use  of  direct,  active speech,  expressing  only  a  single  point  through  one  sub-section  and rearranging the provisions into a rational structure will assist a lay person to understand the provisions of the Direct Taxes Code (DTC).

Why Income Tax Act being replaced with DTC

As per Note given by Ministery of Finance to Standing Committee on Finance and presented  on 9-3-2012 in 49th report of Committee:
The Income-tax Act, 1961, has been subjected to numerous amendments since its  passage fifty years ago. It has been considerably revised, not less than thirty-four times, by amendment Acts besides the amendments carried out through the annual  Finance Acts. These amendments were necessitated by policy changes due to the changing economic environment,      increasing sophistication of commerce, increase in international  transactions  as  a  result  of  globalization,  development  of information technology, attempts to minimize tax avoidance and in order to clarify the statute in relation to judicial decisions. As a result of all these amendments, the basic structure of the Income-tax Act has been  over burdened  and  its  language  has  become  complex.  In  particular,  the numerous amendments have rendered the Act difficult to decipher by the average   tax-payer.  The  Wealth-tax  Act,  1957  has  also  witnessed amendments.