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Direct tax code 1

Accounting and Finance (University of Calcutta)

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THE DIRECT TAX CODE

PROJECT REPORT
(Submitted for the Degree of B.com Honours in
Accounting & Finance under the University of Calcutta)

TITLE OF THE PROJECT

THE DIRECT TAX CODE

SUBMITTED BY

AKASH KUMAR MAHTO

Registration No:016-1121-1956-14

Studying in SHYAMAPRASAD COLLEGE

College Roll No. 301-112

CALCUTTA UNIVERSITY ROLL NO.

SUPERVISED BY

MR.NILOY GOUTAM
For
Submitted in the month of February of the year 2017

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ANNEXURE – IA

Supervisor’s Certificate
This is to certify that Master.AKASH KUMAR MAHTO a student of B.com
Honours in Accounting & Finance of SHYAMAPRASAD COLLEGE under
the University of Calcutta has worked under my supervision and guidance for
his Project Work and prepared a Project Report with the title THE DIRECT
TAX CODE which he is submitting, is his genuine and original work to the best
of my knowledge.

Place: Kolkata Signature

Date: Name: MR. NILOY GOUTAM

Designation:

Name: Name of the College:

SHYAMAPRASAD COLLEGE

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ACKNOWLEDGEMENT

The completion of this project could not have been possible without the
participation and assistance of so many people whose names may not all be
enumerated. Their contributions are sincerely appreciated and gratefully
acknowledged.

However, I would like to express my deep appreciation and indebtedness to my

college, SHYAMAPRASAD COLLEGE and my supervisor MR.NILOY
GOUTAM for his endless support, kind and understanding spirit during the
making of this project.

I had a wonderful experience in making this project and I gained a lot of

knowledge while making it. I will like to conclude this with a big thank you to
my college and its faculty members for their constant attention and help during
the last three years.

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CONTENTS

Serial Particulars Page

No. No.
Annexure IA 2

Acknowledgement 3

Chapter – I 6
1 Introduction 6
1.1 Objectives of the Study 6–7
1.2 Need of the Project 7
1.3 Scope of the Study 8
1.4 Research Methodology 8
1.5 Sampling Size 9
1.6 Research Design 9
1.7 Statement of the Problem 9
1.8 Sampling Procedure 9
1.9 Tools for Analysis 10
1.10 Limitations of the Study 10 –11

Chapter – II 12
National and International Framework 12
2.1 A Brief Overview of the Direct Tax Code and Its 12 – 13
Background
2.2 Journey of the Bill 13
2.3 Proposals of the Bill 14
2.4 Contents of the Bill 15
2.5 Key Highlights 16 – 18
2.6 Other Important Aspects 18
2.7 Advantages 19 – 20
2.8 Disadvantages 20 – 22
2.9 National Scenario 22
2.9.1 Understanding the Indian Direct Tax System 22–23
2.9.2 Struggle for the Enforcement of the Bill 23
2.9.3 Recommendations of the Standing Committee 23 – 24
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2.9.4 Aims of the Draft Direct Tax Code 24

2.9.5 Some Major Area of Changes 25 – 28
2.10 Why India Needs Direct Tax 28

Chapter III 29
3.1 Presentation of Data & Analysis 29 – 42

Chapter IV 43
4.1 Findings 43
4.2 Conclusion 44 – 45
Chapter V 46
5 Bibliography 46

Questionnaire 47 – 49

Annexure IB 50

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CHAPTER – I
1. INTRODUCTION

In India currently the Income Tax Act, 1961 is being followed

which is too complicated. The Direct Taxes Code (DTC) is said to replace the
existing Indian Income Tax Act, 1961. The direct tax code seeks to consolidate
and amend the law relating to all direct taxes, namely, income-tax, dividend
distribution tax, fringe benefit tax and wealth-tax so as to establish an
economically efficient, effective and equitable direct tax system which will
facilitate voluntary compliance and help increase the tax-GDP ratio. Another
objective is to reduce the scope for disputes and minimize litigation. It is
designed to provide stability in the tax regime as it is based on well accepted
principles of taxation and best international practices. It will eventually pave
the way for a single unified taxpayer reporting system.

1.1 OBJECTIVES:-

I have chosen the topic The Direct Tax Code as I find the research on this
particular topic and its field would be interesting and at the same time very
beneficial. Some of the objectives have been listed below.

 Taxation is one of the most important part of any economy, and direct tax
comprises of the basic and major part of the Taxation system
 The scope of Direct Tax is vast and its impact in the economy is huge

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 In the upcoming years there will be major changes in the financial and
economic Structure of the world (especially India) due to the changes in
the Direct Tax system and it’s Implementation.
 Direct tax is something which everybody deals with in regular life.
 Direct Tax Code is something over which not only the financial analysts
and tax analysts are arguing and thinking upon but it has also been a
matter of great discussions in our Parliament.
 There has been a lot of hue and cry over The Direct Tax Code for years
now and till date it has not been implemented.
 The Direct Tax Code is a revolutionary movement in The Indian
Economy.

Considering all the above factors this topic seemed to be very interesting and
hence I choose the same for the Project work.

1.2 NEED OF THE PROJECT

The Income Tax Act, 1961 is too complicated. The provisions of the Tax
System sometimes overlap and even contradict it replete with administrative
discretion that invariably leads to inconsistent application and opportunities for
corruption; provisions are often inconsistent with basic tax principles, it has not
adopted international best practices it fails to deal with many commercial transa
ctions. The Act therefore amply provides for tax planning and
avoidance opportunities which result in serious revenue repercussions.
Similarly complex tax legislations increases the cost of compliance, as
also of administration. Since the cost of compliance is essentially regressive in
nature, this undermines the equity of the Tax System. As a result of these
unfavourable situations there prevails a need of a simplified Tax system and
Scheme which will be provided by the direct Tax Code.
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1.3 SCOPE OF THE STUDY

 Finding out the strengths and weakness of the current Income Tax system
of India

 Finding the benefits of The Direct Tax Code

 Finding the difference between the Income Tax Act 1961 and the Direct
Tax Code

 Finding the benefits of country and people at large with The Direct Tax
Code

 Finding the pros and cons of the Direct Tax Systems

1.4 METHODOLOGY
This project work deals with the various aspects, objectives, advantages and
disadvantages of The Direct Tax Code in India. Further we will be discussing
the functioning of the same in the related fields, comparison with the existing
Tax system its pros and cons etc. To proceed with the analysis we need to first
understand what exactly are The Direct Tax Code, and the requirement of the
same in the Indian Economy.

Primary data was collected through the survey method (questionnaire

observation and interview) from the respondents. Observations regarding the
benefits and problems of the existing tax payers. The questionnaire aimed at
studying the assesse’s preference and feedback for the Direct Tax Code.
Unstructured interview was conducted for some of the respondents to find out
the drawbacks of the current Tax System and the new proposed bill.

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1.5 SAMPLING SIZE

Sample size: For the research the sample size of: -

100 respondents were taken out of which 70% of the population are tax payers.

The geographical area s limited within an area of Park Street and suburbs.

1.6 RESEARCH DESIGN

The type of design being used for making this project is Meta-Analysis Design.

Meta-Analysis is an analytical methodology designed to systematically evaluate

and summarize the results from a number of individual studies thereby,
increasing the overall sample size and the ability of the researcher to study
effects of interest.

1.7 STATEMENT OF THE PROBLEM

The study is being conducted for the Tax payers of Park Street and suburb areas
only for the analysis of preference of tax payers. It is required to find out the
preferences based on certain aspects (Income, source of Income, ease of current
system).

1.8 SAMPLING PROCEDURE

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To obtain the representative sample, a non-probability sample can be drawn. In

this study the method of selecting samples in convenience sampling.

1.9 TOOLS FOR ANALYSIS

The tools used for analysing data are rating method; graphs, pie charts etc.
Questionnaire is distributed to the individual respondents and special care has
been taken to make him/her feel comfortable so that, he/she could answer all the
questions. This method is followed to get unbiased answers.

1.10 LIMITATIONS OF THE PROJECT

Limitations are influences that cannot be control. They are the shortcomings,
conditions or influences that cannot be controlled and hence they place
restrictions on the methodology and conclusions. However the best of the
efforts were laid to accomplish the Project work but there have been some
shortcomings. Any limitations that might influence the results should be
mentioned.

The project work, analysis and report on the health insurance companies have
certain limitations. The same have been listed below:-

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 Due to a limitation to the number of pages for the project work, all the
provisions of The Direct Tax code could not be discussed in details
 Due to a short time span the survey was conducted on very few people.
Hence the result cannot be generalized for the whole population or the
full nation.
 People were hesitant to answer about their tax details hence only basic
questions could be included in the survey.
 The report is based on only one state hence the report may differ for
people of other states.

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CHAPTER – II
2. CONCEPTUAL FRAMEWORK

2.1 A BRIEF OVERVIEW OF THE DIRECT

TAX CODE AND ITS BACKGROUND:-
In India, over the past three decades, the marginal tax rates for personal
Income tax have remained stable broadly reflecting best international practice.
However, corporate tax rates are relatively higher than internationally compared
rates. Any further rationalisation of tax rates may not be feasible without related
increase in the tax base.Broadening of the base is important to enhance revenue
productivity of the tax system and to improve its horizontal equity. The strategy
for broadening the base essentially comprises of three elements foremost
is to minimise exemptions. For several decades in India, the tax base has been
eroded through a steadily escalating range of exemptions. The second element
of the strategy relates to the problem of ambiguity in the law which brings about
tax avoidance. Therefore, it is necessary to amend the tax laws in the light of
new trends in interpretation by the judiciary, aggressive tax planning by

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taxpayers, and new opportunities for reducing compliance cost through massive
induction of technology and public-private partnership in a developing country.

The third element of the strategy, however, relates to checking of erosion of the
tax base through tax evasion. In devising an approach to tax reform, policymak
ers face a difficult choice between “bundling” and “sequencing” – that is,
between attempting to adopt a comprehensive tax reform more or less at
once, in what is sometimes referred to as “big bang approach or in
pursuing a more incremental strategy Both offer advantages and disadvantages
but in general, literature seems to suggest that comprehensive reform
is preferable. There is prima facie evidence to suggest that the overall
performance of countries as measured by average annual inflation and growth
in GDP appear to be on average better among countries which have undertaken
“big bang” tax reforms. Similarly foreign direct investment as
percentage of GDP is also significantly higher in such countries. Accordingly,
the government should rewrite the Income Tax Act, 1961 as a
Direct Taxes Code (DTC) to usher in a “big bang” reform in The Direct Tax
System.

2.2 JOURNEY OF THE BILL 2009 - 2016

The first draft bill of DTC was released by GOI for public comments along with
a discussion paper on 12 August 2009 (DTC 2009) and based on the feedback
from various stakeholders; a Revised Discussion Paper (RDP) was released in
2010. DTC 2010 was introduced in the Indian Parliament in August 2010 and a
Standing Committee on Finance (SCF) was specifically formed for the purpose
which, after having a broad-based consultation with various stakeholders,
submitted its report to the Indian Parliament on 9 March 2012.

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Recent action: As a follow-up on this initiative and as stated by the Finance

Minister (FM) in his Interim Budget Speech in February 2014, after taking into
account the recommendations of the SCF, a “revised” version of DTC (DTC
2013) has been released on 31 March 2014.

2.3 Proposals of the bills

The DTC 2013 proposes to introduce:

 General Anti Avoidance Rules (GAAR),

 Taxation of Controlled Foreign Companies (CFC),

 Place of Effective Management (POEM) rule as a test to determine

residency and tax indirect transfer of Indian assets.

 Also contains expanded source rules for taxation of royalty, fees for
technical services (FTS) and interest.

Further certain novel provisions are also included such as additional tax levy on
certain persons having high net worth such as dividend tax levy on dividend
income earned by resident shareholders in excess of INR10 million. It also
proposes a tax rate of 35% for individuals/HUFs where the total income exceeds
INR100 million.

The DTC 2013 is presently a draft version which can be implemented only after
it is presented before the Indian Parliament where. The fate of the DTC 2013
continues to be is uncertain. Nevertheless, DTC 2013 provides an opportunity to
assess the impact of the proposals on current structures and business models.

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2.4 CONTENTS OF THE DIRECT TAX

CODE
The DTC will be a comprehensive exercise for reforming the direct tax system
and will therefore provide the benefit of taking a holistic view.
The Direct Taxes Code, 2009 version, is designed on best international practice
and sound principles of tax policy, it will provide stability
and eliminate uncertainty; and the need for making frequent amendments in the
tax law will therefore minimise. Removal of exemptions will have
three consequences: (i) higher taxGDP ratio; (ii)enhanced GDP growth,since tax
exemptions and deductions distort allocative efficiency and (iii) improve
equity(both horizontal and vertical), by reducing compliance costs, enabling
lower administrative burdens, and discouraging corruption. The DTC will
allow for a reduction in corporate tax rates thereby, significantly improving
the Internal Rate of Return (IRR) of projects. This should provide an impetus
to higher investment and growth. The biggest beneficiary of the DTC will be the
financial sector higher benefits in terms of higher internal accruals will
result in lower costs of capital for borrower, simplify the tax laws and reduce
the compliance and administrative costs. Further, the provisions relating to

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penalty and prosecution which have been rationalised to provide effective

deterence would create a procompliance environment.

Eventually, it will demonstrate the ability of the Government to undertake swift

and hard decisions on tax reform.

2.5KEY HIGHLIGHTS

1. Personal Tax:

Parliamentary Standing Committee on Finance (SCF) had proposed for tax

exemption limit to be raised to Rs.3 laths. However, this suggestion was not
accepted on the account of huge loss of tax revenues to the government and was
kept unchanged as per DTC bill in 2010 (which is Rs.2 laths for both male as
well as female Indian residents & Rs.2.5 for senior citizens who are eligible
under IT Act of 1961). Additionally, the 2013 draft had proposed the fourth slab
i.e. Higher tax rate of 35% for 'super-rich' with taxable income in excess of
Rs.10 cores. Tax exemption on LTA was to be abolished, but education loan
interest to continue earning exemption. Medical reimbursements limit to be
increased to 50,000 per year. Also, an additional tax of 10 % is to be levied on
dividend payments if it exceeds Rs.1 core.

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Note- The proposal asks for the equal tax treatment of income for both male &
female assesses i.e. women tax payers will lose the special exemption to which
they are currently entitled to.

2. Income from House Property:

The committee had recommended for a differentiation between commercial and

non-commercial leasing of property. The rental income from commercial
leasing of property is proposed to be taxable as business income and eligible for
allowance of expenses and depreciation. Also, a tax deduction of 20% of the
annual rent for repairs and maintenance of house property had been proposed.

3. Wealth Tax.

The wealth tax is levied on assets except the ones that are held in stocks. Also,
the following assets do not come under purview of wealth tax-

a) Assets used for charitable activities

b) Agricultural land
c) One house up to 500 square meters
d) Foreign assets of non-resident Indians

The bill proposes that the limit of maximum net wealth not subjected to taxation
is to be increased from the existing Rs.30 laths to Rs.50 cores. Also, the rate of
wealth tax is to be charged at 0.25% of the net value after exemption limit.

4 Corporate Taxes

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The concept of Minimum Alternative Tax (MAT) was proposed in direct tax
code and it is levied if the tax liability under the standard requirements is lower
than 18.5% of book profits. However, life insurance companies are not covered
under this regulation. Also, corporate tax is to be reduced to 30 % from 40 %.

5. Taxation of international entities

If a certain foreign entity has 20 % or more of total assets in India, then the
income arising from the same is subject to taxation.

6. Introduction of GAAR (General Anti-Avoidance rule) under international

taxation.

7. Change in NRI laws:

Present law states that an NRI is liable to pay tax on his global income if the
stay in India is more than 182 days within a financial year. DTC proposes that
this duration should be changed to just 60 days .An NRI is eligible to be taxed
for his global income only if he had stayed in India for nine out of 10 precedent
years or 730 days in preceding seven years.

The said direct tax was introduced by the Ministry of Finance to make taxation
simpler as well as bring transparency along with eliminating the loopholes
currently prevailing in economy.

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2.6 OTHER IMPORTANT ASPECTS

Some other details relating the Direct Tax Code are as follows:-

 Proposed bill has 319 sections and 22 schedules against 298 sections and
14 schedules in existing IT Act.
 Once enacted, DTC will replace archaic(older and no longer useful)
Income Tax Act.
 However, many provisions in Income Tax Act will be a part of DTC as
well.
 Mutual Funds/ULIP dropped from 80C deductions : Income from equity-
oriented mutual funds or ULIP shall be subject to tax @ 5%
 Fringe benefits tax will be charged to the employee rather than the
employer.
 Political contribution of up to 5 percent of the gross total income will be
eligible for deduction.

2.7 ADVANTAGES
 Single code for direct taxes: By bringing all direct taxes under a
single code with unified compliance features, a single unified taxpayer
reporting system can be facilitated.
 Eliminates the problem of constant litigation: Special care has been
taken to avoid contradictory and ambiguity in the code, to avoid
misinterpretation and misuse.

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 Flexibility: The statute has been structured in a way that can

accommodate the changes and requirement of a growing economy without
having to constantly resort to amendments.
 Eliminates regulatory functions: Regulatory functions are to be
carried out by other regulatory authorities, keeping it simple.
 Stability: In the current system, the tax rates are formed in the Finance
Act of the relevant year. All rates of taxes under the DTC, however, are
proposed to be prescribed in the First to Fourth schedule of the DTC itself,
and any amendments to the same will be brought before Parliament as an
Amendment Bill.
 Political contributions of up to 5% of the gross total income will be
eligible for deduction.
 Fringe benefits tax will be charged to the employee rather than the
employer.
 Annual investments in approved funds and insurance proposed at
Rs.1,50,000, instead of Rs.1,20,000
 Equitable: The burden of direct taxes can’t be shifted, and an equitable
sacrifice of income and wealth can be achieved from all sections of society
through progressive taxation
 Economical: Income tax and most other forms of direct taxation are
done at source with the help of TDS (Tax Deduction at Source), and are hence
not a problem for the government to collect.
 Certainty: There is a sense of certainty from the taxpayer and the
government, as each know how much to pay and how much to expect to
collect respectively..
 Productivity: Direct taxes are very productive in the sense that as the
working population and community grows, so do the returns from direct
taxation.

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 Consciousness of duty: When people consciously pay their taxes, they

can claim the right to know how their money is being spent by the
government.
 Creates equal distribution of wealth: The government charges more
taxes from those that can afford them, and uses this money to uplift the lower
and poorer sections of society.

2.8 DISADVANTAGES
Anything and everything in the world has some pros and some sons i.e. a good
side as well as a bad side. The Direct Tax code might prove to be quiet
beneficial for India and its people however there remains certain disadvantages
of the same too.

Union Finance Minister reiterated that the government would take inputs from
various stakeholders before giving final shape to the Direct Taxes Code (DTC).

Addressing the second meeting of the parliamentary consultative committee

attached to his ministry , he said that since the issue of direct taxes impinged on
the lives of millions of individuals directly or indirectly, the suggestions and
concerns raised by committee members during the previous meeting was of
great importance in fine-tuning a taxation policy regime to meet the aspirations
and expectations of the people, the younger generation and the globalised
corporate sector.

As per the Finance Minister there are ten major issues as raised and identified
during interactions with other stakeholders, trade and industry representatives,
civil society organisations and members of the consultative committee. The
areas of concern are :-

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 Minimum Alternate Tax (MAT) on gross assets;

 Provisions relating to taxation of foreign companies
 Residential status of foreign companies — their control and management
 Application and treatment of the General Anti-Avoidance Rule (GAAR)
 Taxation of charitable organisations
 Shift from EEE (exempt-exempt-exempt) to EET (exempt-exempt-tax)
method of taxation of savings
 Capital gains taxation
 Taxation in the case of salaried class employees
 Taxation of income from house property
 Deduction of interest on housing loans.

However it has been assured members that all these issues were under
deliberation and a considered view would be taken on them in due course. The
DTC, he explained, was aimed at giving a competitive edge to the country while
dealing with international taxation issues. For instance, the code contains a
provision for ‘advance pricing agreement’ (APA), a mechanism which has been
proposed to bring about certainty and stability in the taxation of cross-border
transactions.

The Minister pointed out that the Dispute Resolution Panel (DRP) — already
introduced for disputes relating to transfer pricing — along with APA would
provide a fiscal environment conducive for foreign investments in India. Since
the trade and industry has been demanding an alternative dispute resolution
mechanism for transfer pricing related issues for quite some time. The Finance
Minister emphasised that the DTC should not be compared with the Income-tax
Act, 1961, as the attempt was to move forward on the basis of a broad tax base,
moderate tax rates, effective implementation strategy and better delivery of
services to tax payers.

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2.9 NATIONAL SCENARIO

Direct tax code (DTC) was proposed to be effective from 1st April 2012 and the
bill was first introduced in the parliament on 30th August 2010 with an
intension to simplify tax laws and replace the Income-tax Act, 1961 (ITA).
However, it was deferred and the ministry introduced direct tax code bill draft
for the second time in 2013 (plugging the loopholes that were noticed in the first
DTC bill) .This bill is presently awaiting official approval to be in effect.

2.9.1 Understanding the Indian Direct Tax System

In India broadly, there are two types of taxes that the Indian government levies
on its citizens – direct tax and indirect tax.

Direct taxes are those which are paid directly to the government by the
taxpayer. These taxes are not paid deducted and paid on behalf of the taxpayer.
It’s imposed on the people and organizations directly by the government. This
tax liability has to be paid by the taxpayer in question and cannot be transferred
to any other entity for payment.

Key examples of direct taxes are

 Income tax
 Wealth tax
 Corporation tax

2.9.2 Struggle for enforcement of the bill

Even as finance minister scrapped the proposed direct taxes code (DTC) in
Budget 2015-16, the standing committee on finance has recommended that the

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new direct tax regime should be introduced within a “stipulated deadline along
the lines of the goods and services tax (GST)”.
“The committee desires that the government should go ahead with the DTC
with its good provisions and implement the same within a stipulated deadline…
while doing so the government would rely on the report of the committee on
DTC bill so as to ensure that a flawless legislation is finally enacted,” the panel
has said.

2.9.3 Recommendations of the Standing

Committee
The committee’s recommendation comes amid the finance minister, in his
Budget speech, announcing that the DTC will not be pursued as most of the
provisions of the proposed Code have been incorporated in the existing Act. The
enactment of the DTC had been under discussion since 2009 and meanwhile,
provisions including concepts like controlled foreign cooperation and general
anti-avoidance rules (GAAR) have already been incorporated in the Income Tax
Act, 1961. The “very few aspects” which were left out, the minister had said,
were being taken up in the current year’s Budget.
However, the standing committee argued that the existing Act is a cumbersome
statute, fraught with complexities and several ambiguities prone to “capricious
interpretations and avoidable litigation”.
“The committee are not convinced with the reply of the government that there is
no great merit in going ahead with the DTC, as it exists today, as most part of
the provisions of the DTC have already been included or are proposed to be
included in the Income Tax Act,”
It also questioned the revenue department’s approach of the piecemeal
implementation of the Code. The department though concurred that the
proposed tax law was in much simpler language, it said, “if you go for a new

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law will again take years or may be a decade for the jurisprudence, for the case
laws to get settled”.

2.9.4 Aims of the Draft Direct Tax Code

In a move to establish a more efficient, effective and equitable direct tax system,
the Direct Taxes Code or DTC has been drafted to replace the existing Indian
Income Tax Act of 1961. It aims to consolidate and amend all laws relating to
the direct taxes in order to facilitate voluntary compliance and increase the tax-
GDP ratio. With its 319 Sections and 22 Schedules, the DTC aims to replace the
old Income Tax Act and provide a more stable, efficient and overall better code
for taxation incorporating the best taxation principles and proven international
practices

Companies are not too upbeat about the final rate of 30 per cent as they are
already paying tax at an effective rate of around 33 per cent. With the objective
of introducing a simpler tax regime in India, the Finance Minister finally tabled
the Direct Taxes Code Bill in the Parliament on August 30, 2010, after almost a
year of releasing the first draft.

2.9.5 Some Major Areas of Change

Corporate Tax

Changes –

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The disparity between the rates of tax applicable to domestic company’s vis-à-
vis foreign companies has been removed by the Code. However, India Inc. is
not too buoyant with the final rate of 30 per cent as against the rate proposed in
the first draft, that is, 25 per cent. Though additional levies such as surcharges,
etc., have been removed, the 30 per cent rate does not have much to offer to the
Indian companies which are already paying tax at an effective rate of
approximately 33 per cent.

Scope of Change –

The scope of total income liable to tax in India continues to be a factor of the
residential status of the company. As against the current scheme of the Act, the
residential status of a non Indian company is to be determined based upon the
‘place of its effective management'. If at any time in the year, the place of
effective management of a non Indian company is situated in India, the non
Indian company shall be treated as a resident for Indian tax purposes and
thereby be liable to tax in India on its worldwide income.

The mode of computation of the taxable base broadly is the same as in the
current legislation. However, tax deductible expenses have been distinguished
under three main heads — operating expenses, finance charges and prescribed
capital allowances such as depreciation, and so on. Expense incurred on in-
house R&D shall be eligible for 200 per cent of weighted deduction as against
the present 150 per cent.

As in the current legislation, expenses incurred on personal account and capital

expenses, other than those specifically allowable, shall continue to remain non-
deductible for tax purposes. The Code also allows carry forward of business
losses indefinitely.

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MAT rate

Changes

Despite all these, India Inc. did let out a sigh of relief when Minimum Alternate
Tax (MAT) was levied on book profits, in the Revised Discussion Paper issued
by the Ministry of Finance, instead of gross assets.

However, pegging the MAT rate at an all-new high of 20 per cent may turn out
to be a dampener especially in view of the proposed phase out of all profit-
linked incentives. The Code has extended the period for carry forward of MAT
from the current 10 years to 15 years.

Scope of changes

Levy of dividend distribution tax (DDT) on domestic companies continues as

earlier. The Code allows the dividend paying company to reduce from the total
dividends any dividend received from a subsidiary provided the subsidiary has
paid DDT on such payout, thereby attempting at mitigating the cascading effect
of dividends paid by companies in a multilayered structure.

The Code also proposes levy of Branch Profits Tax (BPT) at 15 per cent on
foreign companies. BPT is an additional levy on a foreign company. A foreign
company is required to pay BPT on income attributable to its permanent
establishment (PE) or immovable property situated in India.

The Code defines PE on similar lines as most of the tax treaties, that is, it
includes an office, branch, concept of installation PE, service PE, etc.

Capital Gains Tax

Changes

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The Code classifies all assets into business assets and investment assets. Income
from transaction in business asset is taxable as business income while income
from investment assets is taxable as capital gains.

The Code continues with the levy of Securities Transaction Tax and exempts
long term capital gains on sale of shares of a listed company or equity-oriented
funds. However, a standard deduction of 50 per cent is allowed under the Code
for ‘short term capital gains' which makes the effective rate of tax on short term
capital gains for companies 15 per cent. The Code also allows carry forward of
capital losses indefinitely.

Scope of Changes

The Code allows the SEZ developers to continue claiming the deduction they
are entitled to under the current Act provided such SEZ developer is notified
under the Special Economic Zones Act, 2005 on or before March 31, 2012. In
addition, the Code also permits deduction to SEZ units which begin to
manufacture or produce articles or things or provide services before March 31,
2014.

Based upon recommendation of the Parliamentary Standing Committee on

Finance, the Code provides for investment linked incentives to specified
businesses such as generation of power, infrastructure facility, hospital, hotel,
cold chain facility, etc. However, no deduction is allowable on expense incurred
to acquire land, goodwill or financial instrument.

The efforts of the Government to introduce a simpler tax regime are welcome
but most of the Code seemingly contains provisions similar to the current
legislation with only a few exceptions which are suggestive of the perception of
India Inc: Much ado about nothing.

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2.10 WHY INDIA NEED DIRECT TAX

CODE
 There are several reasons behind the need of DTC as follows:
 Provides stabilities in direct tax rates
 Increase tax to GDP ratio
 Corporate tax 30%(no surcharge and cess) Wealth tax “cut off” increased

 DTC bill has had its share of criticism post its proposal which has
eventually been the reason for delay in applicability of it. However the
same will be applicable soon.

CHAPTER – III
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3. PRESENTATION OF DATA &

ANALYSIS
On the basis of the answers received from the annexed questionnaire the
following analysis has been made.

Figure 1

1) Please tick the age group you belong to

 18 – 30 [ ]

 31 – 45 [ ]

 46 – 59 [ ]

 60 or above [ ]

2) Gender

 Male [ ]

 Female [ ]

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Chart Title

25%

20%

15%

10%

5%

0%
Age 18 - 30 Age 31 - 45 Age 46 - 59 Age 60 and above
Male Column1

The above Figure 1, shows the Age Group and Gender of the number of
customers who were taken as samples for the sample study. By analysing the
same we could conclude the following: -

 15% of the samples belonged to the age group of 18-30 years, which
contained 10% male samples and 5% female samples.

 32% of the samples belonged to the age group of 31-45 years, which
contained 20% male samples and 12% female samples.

 45% of the samples belonged to the age group of 46-59 years, which
contained 25% male samples and 20% female samples

 8% of the samples belonged to the age group of 60+ years, which

contained 5% male samples and 3% of female samples.

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Figure 2

1) Please tick your occupation

 Professional [ ]

 Self Employed [ ]

 Land Lords [ ]

 Student [ ]

 Traders [ ]

ASSESSE's Occupation

30%

25%

20%

15%

10%

5%

0%
Professionals Self Employed land lord Students Traders
Column1

The above Figure 2, show the occupation of the people (assesse) who were
taken as samples for the sample study. By analysing the same we could
conclude the following: -

 30% of samples were Professionals

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 20% of samples were Self-Employed

 5% of samples were from Land lords

 15% of samples were students

 30% of samples were Traders

Figure 3

1. How frequently do you check your Tax deductions and benefits scheme?

 Monthly [ ]

 Quarterly [ ]

 Half Yearly [ ]

 Annually [ ]

2) Please tick your income range

 Less than Rs2.5 lakhs per annum [ ]

 Rs.2.5 to Rs.5 lakhs per annum [ ]

 Rs.5 to Rs.10 lakhs per annum [ ]

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25

20

15

10

0
Monthly Quaterly Half Yearly Annualy
<250000 250000 - 500000 500000 - 1000000 >1000000

 More than 10 lakhs per annum [ ]

The above Figure 3, line graph shows the frequency of information updation
about tax deduction and benefits of people who was taken as samples for the
sample study with their monthly income. The following table will show us the
frequency of assesse getting updated about their tax benefits and deductions.

Frequency Monthly Income of the customers Total

< 200,000 500,000 >10,00,00
200,000 - – 0
0 500,000 10,00,00
0

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Monthly 10 4 4 6 24

Quarterly 5 5 3 2 15

Half Yearly 20 10 6 4 40

Annually 8 8 3 2 21

Figure 4

1) Are you aware of the official site of Income Tax India i.e.
efillingindia.gov.in?

 Yes [ ]

 No [ ]

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Are you aware of offical income tax website ?

No; 30.00%

Yes; 70.00%

From the above Figure 4, it can be analysed that: -

 70% of the respondents are aware of the official website

 30% do not know about it

Figure 5

1) What tax according to you is the highest income source to Government?

 Income Tax [ ]

 Service Tax [ ]
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 Value Added Tax [ ]

 Customs and Excise [ ]

 No idea [ ]

Highest Earning Tax for Government As Per You

Customs and Excise; 5.00%

Value Added Tax; 10.00%

No Idea; 5.00%

Income Tax; 50.00%

Service Tax; 30.00%

Income Tax Service Tax Value Added Tax

Customs and Excise No Idea

The above Figure 5 shows the analysis of consumer’s choice of e-commerce

website of which: -

 50% respondents think Income Tax

 30% respondents think Service Tax

 10% respondents think VAT

 5% respondents think Customs and Excise

 While 5% do not have any idea

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Figure 6

1) Do you get your return filed by a CA?

 Yes [ ]

 No [ ]

From the above Figure 6, it can be concluded that: -

 40% assesse get their returns filed by a CA

 While remaining 60% don’t

DO YOu get your return filed by a ca?

Yes ; 40.00%

No; 60.00%

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Figure 7

1) Do you prefer the Self Assessment System?

 Yes [ ]

 No [ ]

DO YOU prefer the self assessment system

No; 40.00%

Yes ; 60.00%

The above Figure 7 clearly shows that: -

 60% of the respondents prefer the Self assessment system

 While 40% do not prefer that system

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Figure 8

1) How will you rate the current Income Tax System?

 Excellent [ ]

 Good [ ]

 Average [ ]

 Bad [ ]

RATE THE CURRENT INCOME TAX SYSTEM

Bad 10%

Average 60%

Good 20%

Excellent 10%

0% 10% 20% 30% 40% 50% 60% 70%

The above Figure 8 shows that: -

 10% of the respondents think that the current Income Tax system is
excellent

 20% of the respondents say that the current Income Tax system is
working good

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 60% of the respondents say current Income Tax system is working

Average

 While 1o% of the respondents show that current Income Tax system is
not working well

Figure 9

1) How do you think The Direct Tax Code System would work?

 Excellent [ ]

 Good [ ]

 Average [ ]

 Bad [ ]

 No Idea [ ]

How do you thing the DTC system would work

70%

60%

50%

40%

30%

20%

10%

0%
Excellent Good Average Bad No idea

The above Figure 9 shows that: -

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 20% of the respondents think that the Direct Tax Code system will work
in excellent manner

 60% of the respondents 20% of the respondents think that the Direct Tax
Code system will be Code

 10% of the respondents think that the Direct Tax Coe system will be
average in functions

 1 % of the respondents think that the Direct Tax Code system will not
work well

 while 9% of the respondents do not have any knowledge about the same

Figure 10

1) Have you think that the Direct Tax Code system will prove to be an
economic reform for India?

 Yes [ ]

 No [ ]

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Do you think DTC will be an economic reform in India?

40.00%

60.00%

Yes No

The above Figure 10 shows that: -

 60% of the respondents think the Direct Tax Code will be an economic
reform for India

 While 40% of the respondents do not think so

Figure 11

1) Do you want the current Tax system to be changed as per the direct Tax
Code?

 Yes [ ]

 No [ ]

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The above Figure 11 shows that: -

Do you waant the current system to be changed to DTC

30.00%

70.00%

Yes No

 70% of the respondents feel that the Direct Tax Code system should
enforced

 While 10% of the respondents don’t feel so.

Figure 12

Do you think that the current tax system i.e. Income Tax Act 1961 is complex?

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 Yes [ ]

 No [ ]

Do you think the current Income Tax system is complex

40.00%

60.00%

Yes No

The above Figure 12 shows that: -

 40% of the respondents feel that the current tax system is complex

 While the rest 60% of the respondents feel it is simple.

CHAPTER – IV
4.1 FINDINGS
The Direct Tax Code will thus:-

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 Provides stabilities in direct tax rates

 Increase tax to GDP ratio
 Corporate tax 30% (no surcharge and cess)
 Wealth tax “cut off” increased
 Major Deductions applicable under Tax Incentives for an individual:
 Investments through PFRDA approved agencies (Max of 3 Lakhs)
 Payment of tuition fees
 Medical treatment
 Health insurance
 Donations
 Interest on loan taken for higher education
 Maintenance of a disabled dependant
 Interest income on Govt. bonds

4.2 CONCLUSION
In order to implement the DTC, the government should immediately review the
Direct Taxes Code 2009 version, released to the public in August, 2009. The
review would ordinarily take less time than conceptualising and
drafting amendments to the prevailing Income Tax Act, 1961. The Direct Taxes
Code (2016 version) should be introduced as part of the Budget 2017 as of

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money bill so as to ensure it speedy passage within seventy five days of

its introduction. Since the provisions of this version have already been debated
and analysed by the public at great length and by the Standing Committee on
Finance in detail, it would not be difficult to execute the Code. There should be
no amendments to the Income Tax Act, 1961 in the Budget 2017
and all direct tax proposals should be reflected in the Direct Taxes Code.

DTC proposals regarding NRI‟s taxation seems to be slightly harsh. For NRI ‟s,
if we stay in India for at least 60 days and earn money, we will be taxed. The
limit earlier was 182 days. Thus it appears that new tax bill implemented from
1st April 2013 has some good news and some bad news. This will have a
positive effect on the work and consumption/savings rates. The tax base
increased as the tax rate is simple to understand .These rates will have greater
revenue potential. But the cost of collection tax still remains to be examined. It
seemed the reforms proposed in new direct tax code shall have great positive
implication for India’s outlook and made the most of tax system, as part of
efforts to cancel revenue deficit and lower fiscal deficit to less than 3.0 percent
of GDP. DTC doesn’t provide any extra benefit to women. Women giving men
tough fight seems to be a reality as per DTC. DTC proposed to levy dividend
distribution tax at 15%. Thus, DTC aims to replace the archaic Income Tax Act
and simplify the whole direct tax regime in the country. The Code aims to
reduce tax rate which seem to be a very positive and progressive initiative from
the government side. Moreover, the implementation of the proposed fiscal
reforms will reduce both tax evasion and costs of compliance, and eliminate
most of the distorted behaviour coming from tax avoidance. These tax reforms
are largely in response to the massive reforms enacted in the UK and the US in
the 1980‟s. Therefore, this bill will introduce a total departure from multiple tax
brackets and high rates of tax prior to reforms. Thus in market oriented
economy like us it is expected that the tax structure brought forward by this bill

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reduce conspicuous consumption and make it difficult for people to evade and
avoid tax, and thus will promote horizontal equity.

In short, DTC will have a direct impact on tax saving and calculations. With the
implementation of DTC, government encourages savings and contributed to
infrastructural development.

CHAPTER – V
BIBLIOGRAPHY

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The project work on The DIRECT TAX CODE has been done with the
reference of the following :-

 Google
 https://en.wikipedia.org/wiki/Direct_Taxes_Code
 http://www.livemint.com/Opinion/5PGG7NPHqdOmwjAmyWJc2L/India
-still-needs-the-Direct-Tax-Code.html
 https://www.kotakmoneywatch.com/index.php/article/571-the-highlights-
of-direct-tax-code-dtc

QUESTIONNAIRE
Respected Sir/Madam,

I am a student pursuing B.com(Hons) from the Shayamaprasad College I am

doing a project on “The Direct Tax Code: How is the current Income Tax
System working , how and when will the Direct Tax Code be applied what will

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be its aftermath etc. I kindly request you tick the below mentioned questions
which will help me in my research study.

1) Please tick the age group you belong to

 18 – 30 [ ]

 31 – 45 [ ]

 46 – 59 [ ]

 60 or above [ ]

2) Gender

 Male [ ]

 Female [ ]

3) Please tick your occupation

 Professional [ ]

 Self Employed [ ]

 Land Lords [ ]

 Student [ ]

 Traders [ ]

2. How frequently do you check your Tax deductions and benefits scheme?

 Monthly [ ]

 Quarterly [ ]

 Half Yearly [ ]

 Annually [ ]
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3) Please tick your income range

 Less than Rs2.5 lakhs per annum [ ]

 Rs.2.5 to Rs.5 lakhs per annum [ ]

 Rs.5 to Rs.10 lakhs per annum [ ]

 More than 10 lakhs per annum [ ]

4) Are you aware of the official site of Income Tax India i.e.
efillingindia.gov.in?

 Yes [ ]

 No [ ]

5) What tax according to you is the highest income source to Government?

 Income Tax [ ]

 Service Tax [ ]

 Value Added Tax [ ]

 Customs and Excise [ ]

 No idea [ ]

6) Do you get your return filed by a CA?

 Yes [ ]

 No [ ]

7) Do you prefer the Self Assessment System?

 Yes [ ]

 No [ ]

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8) How will you rate the current Income Tax System?

 Excellent [ ]

 Good [ ]

 Average [ ]

 Bad [ ]

9) How do you think The Direct Tax Code System would work?

 Excellent [ ]

 Good [ ]

 Average [ ]

 Bad [ ]

 No Idea [ ]

10) Have you think that the Direct Tax Code system will prove to be an
economic reform for India?

 Yes [ ]

 No [ ]

11) Do you want the current Tax system to be changed as per the direct Tax
Code?

 Yes [ ]

 No [ ]

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ANNEXURE – IB

STUDENT’S DECLARATION
I Hereby declare that the Project Work with the title THE DIRECT TAX
CODE submitted by me for the partial fulfilment of the degree of B.com
honours in Accounting & Finance under the University of Calcutta is my
original work and has not been submitted earlier to any other University for the
fulfilment of the requirement of any course of study.

I also declare that no chapter of this manuscript in whole or in part has been
incorporated in this report from any earlier work done by others or by me.
However, extracts of any literature which has been used for this report has been
duly acknowledged providing detailed of such literature in the references.

Signature :
Name: AKASH KUMAR MAHTO
Address: 7,Madan chatterjee
lane,GIRISH PARK,KOL-07
Registration No:016-1121-1956-14
CU Roll No:

Place: Kolkata
Date:

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