Direct Tax Code

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DIVIDEND DISTRIBUTION TAX UNDER DIRECT TAXES
CODE
By: Mr. M. GOVINDARA1AN : View Profile

DIVIDED DISTRIBUTED OR PAID BY A COMPANY:
Sec.314 (81) (1) oI the Direct Taxes Code provides that the term
'dividend distributed or paid by a company includes-
A) any distribution by a company oI accumulated proIits, whether
capitalized or not, iI such distribution entails the release by the company
its shareholders oI all or any part oI the assets oI the company;
B) any distribution to its shareholders by a company oI debentures or
debenture-stock, or deposit certiIicates in any Iorm, whether with or
without interest, and any distribution to shareholders oI its preIerence
shares by way oI bonus, to the extent to which the company possesses
accumulated proIits, whether capitalized or not;
C) any distribution made to the shareholders (other than the share
holders not entitled in the event oI liquidation to participate in the
surplus asses) oI a company on its liquidation, to the extent to which the
distribution is attributable to the accumulated proIits oI the company
immediately beIore its liquidation, whether capitalized or not;
D) any distribution to its shareholders (other than shareholders not
entitled in the event oI liquidation to participate in the surplus assets) by
a company on the reduction oI its capital, to the extent to which the
company possesses accumulated proIits, whether such accumulated
proIits have been capitalized or not; and
) any payment by a closely-held company, to the extent oI
accumulated proIits, iI such payment is-
O by way oI advance or loan to a shareholder being the beneIicial
owner oI equity shares holding not less than 10 oI the voting power; or
O by way oI advance or loan to any Hindu undivided Iamily, or a
Iirm, or an association oI persons, or a body oI individuals, or a
company in which such shareholder is a member or a partner or a
shareholders, and in which he has a substantial interest; or
O to any person on behalI, or Ior the individual beneIit, oI such
shareholder
Sec. 314(81)(2) provides that the dividend distributed by a company
does not include-
Any advance or loan made to a shareholder or the said concern by a
company in the ordinary course oI its business, where the lending oI
money is a substantial part oI the business oI the company;
any divided paid by a company which is set oII by the company
against the whole or any part oI any sum previously paid by it and
treated as a dividend within the meaning oI Sec.314(81)(1)(e) to the
extent to which it is set oII;
any payment made by a company on purchase oI its own shares Irom
a shareholder in accordance with the provisions oI Section 77A oI the
Companies Act, 1956; and
any distribution oI shares pursuance to a demerger by the resulting
company to the shareholders oI the demerged company (whether or not
there is a reduction oI capital in the demerged company).
DIVIDD ICOM
Sec. 7 oI the Direct Taxes Code provides that Ior the purpose oI
inclusion in the total income oI an assessee any dividend declared,
distributed or paid by a company within the meaning oI item (a) or item
(b) or item (c) or item (d) or item (e) oI sub clause (1) oI Section 314
shall be deemed to be the income oI the Iinancial year in which it is so
declared, distributed or paid as the case may be. Any interim dividend
shall be deemed to be the income oI the Iinancial year in which the
amount oI such dividend is unconditionally made available by the
company to the member who is entitled to it.
DIVIDD DISTRIBUTIO TAX
Sec. 314 (82) deIines 'dividend distribution tax' as the tax chargeable
under Section 109. Dividend distribution tax is dealt with in Chapter
VII oI Part B oI Direct Taxes Code. Sec. 109 provides that every
domestic company shall be liable to pay tax on any amount oI dividend
declared, distributed or paid, whether interim or otherwise, to its
shareholders, whether out oI current or accumulated proIits. The said
amount shall be reduced by the amount oI dividend iI any received by
the domestic company during the Iinancial year iI such dividend is
received Irom its subsidiary and the subsidiary has paid tax under this
section on such dividend. A company shall be a subsidiary oI another
company iI such other company holds more than IiIty per cent oI
nominal value oI the equity share capital oI the company. The term
'dividend' Ior the purpose oI this section shall not include any payment
reIerred to in item (e) oI sub clause (1) oI clause (81) oI Section 314.
The tax rate is 15 on the amount oI dividend declared, distributed or
paid by a domestic company.
PAYMT OF TAX
The domestic company or the principal oIIicer oI such company
responsible Ior making payment oI the dividend, as the case may be,
shall be liable to pay the tax on dividend to the credit oI the Central
Government within a period oI Iourteen days Irom the date oI
declaration, distribution or payment oI such dividend, whichever is
earliest. It is to be noted that no deduction under any other provision oI
this Code shall be allowed to the domestic company or a shareholder in
respect oI the dividend charged to tax or the tax thereon. The Code
Iurther provides that the tax on dividend so paid by the domestic
company shall be treated as the Iinal payment oI tax in respect oI the
dividend declared, distributed or paid and no Iurther credit shall be
claimed by the domestic company or by any other person in respect oI
the tax so paid.
FAILUR TO PAY TAX
II the tax payment has not been made in accordance with this provision,
then the domestic company or the principal oIIicer oI such company
shall be deemed to be an assessee in deIault in respect oI the tax payable
by it or him and the provisions oI this Code relating to the collection and
recovery oI tax shall apply.
II the tax is not paid within the stipulated period either wholly or partly
then simple interest is liable to be paid 1 Ior every month on the
amount oI such tax Ior the period beginning on the date immediately
aIter the last date on which such tax was payable and ending with the
date on which the tax is actually paid.
MADATORY PAYMT
otwithstanding that no income tax is payable by a domestic company
on its total income computed in accordance with the provisions oI Part A
oI the Code, the tax on dividend declared, distributed or paid under this
section shall be payable by the company.
Dated - ovember 19, 2010
DIRCT TAX COD 2010 - SOM SUGGSTIOS FOR
SIMPLIFICATIOS AD WITH A LOG-TRM PRSPCTIV.
By C.A. Uma Kothari View ProIile

Direct Tax Code
As the name suggest and as per preamble to the Code this enactment will
be a wholesome enactment in relation to levy, collection and recovery oI
direct taxes. As per the present Bill it covers Income-tax and Wealth tax.
In Iuture it may cover new levies in nature oI other direct taxes, as had
been our experience in the context oI Income-tax Act, 1961.
ThereIore, it is advisable that the provisions should be draIted with a
long-term perspective to cover all direct taxes without any doubt or
ambiguity and in a simple manner.
Habits have to be changed to read more complex provisions
The Income-tax Act and Wealth Tax Act were complex, but were not so
complex as would be the DTC is likely to be.
We Iind the Direct Tax Code has a changed scheme oI draIting. Various
related provisions are scattered at many places - the object and
preamble, the clauses oI provisions in sections, clauses Ior deIinitions,
provisions contained in Schedules, another enactments and many things
will still be prescribed by Rules and other notiIications etc.
ven within deIinition clause complete deIinition is not give at one
place. For example, we Iind deIinition oI Finance charges in S. 314 (98)
which includes any incidental Iinancial charges and then we have to
reIer to clause (119) to Iind deIinition or meaning oI 'incidental Iinancial
charges'. We also Iind deIinition or meaning oI 'interest' in clause (140).
Similarly we Iind deIinitions or meaning oI various tax authorities
scattered in many places oI the DTC. It is suggested that all related
words can be placed at one place Ior easy understanding oI relevant
provisions.
Insertions oI other deIinitions with suitable modiIications
One oI the purposes oI DTC is simpliIication thereIore; the draIting oI
the provisions should be in easily comprehensible manner and to provide
related provisions at one place. Various deIinitions adopted and reIerred
Irom other enactments like the Companies Act, FMA, Co-operatives Act, Disaster
Management Act, InIormation Technologies Act, etc. Can be speciIically incorporated in the
DTC with necessary modiIications, iI required. This will also serve long-term perspective oI
DTC because a change or amendment in the respective enactment can be to serve a diIIerent
purpose in Iuture which may not be consistent with the purposes oI DTC in Iuture.
Direct Tax authorities:
As the enactment will be Ior all direct taxes, it is suggested that the designations oI authorities
can be made like 'Direct Tax Authorites'- Direct Tax OIIicer, Direct Tax Commissioner.
In the Iollowing table some illustrations have been given about suggested draIting oI provisions

Designation used in the Bill Suggested designation with abbreviation Remarks
Section 127.
(1) The Central Government may appoint
such persons as it thinks Iit to be income-
tax authorities.
127. (1) The Central Government may
appoint such persons as it thinks Iit to be
direct tax authorities (DTA).

(2) Without prejudice to the provisions oI
sub-section (1), and subject to the rules and
orders oI the Central Government
regulating the conditions oI service oI
persons in public services and posts, the
Central Government may authorise the
Board, or a Director-General, a ChieI
Commissioner or a Director or a
Commissioner to appoint income-tax
authorities below the rank oI an Assistant
Commissioner.
orders oI the Central Government
regulating the conditions oI service oI
persons in public services and posts, the
Central Government may authorise the
Board, or a Director-General, a ChieI
Commissioner or a Director or a
Commissioner to appoint Direct-tax
authorities below the rank oI an Assistant
Commissioner.

(4) The Board may, by notiIication, direct
that any income-tax authority or authorities
speciIied in the notiIication shall be
subordinate to such other income-tax
authority or authorities as may be speciIied
in such notiIication.
that any direct-tax authority or authorities
speciIied in the notiIication shall be
subordinate to such other direct-tax
authority or authorities as may be speciIied
in such notiIication.

314. In this Code, unless the context
otherwise requires

22) "Assessing OIIicer" means the Income
Tax OIIicer, Assistant Commissioner,
Assistant Director, Deputy Commissioner,
Deputy Director, Joint Commissioner,
Joint Director, Additional Commissioner
22) "Assessing OIIicer" means the Direct
Tax OIIicer, Assistant Commissioner,
Assistant Director, Deputy Commissioner,
Deputy Director, Joint Commissioner,
Joint Director, Additional Commissioner

or Additional Director, who is vested with
the relevant jurisdiction by virtue oI
direction or order issued under section 130
or any other provision oI this Code;
or Additional Director, who is vested with
the relevant jurisdiction by virtue oI
direction or order issued under section 130
or any other provision oI this Code;
(25) "Assistant Commissioner" means a
person appointed to be an Assistant
Commissioner oI Income-tax under section
127;
(25) "Assistant Commissioner" means a
person appointed to be an Assistant
Commissioner oI Direct Tax under section
127;

(75) "Deputy Commissioner" means a
person appointed to be a Deputy
Commissioner oI Income-tax under section
127;
(75) "Deputy Commissioner" means a
person appointed to be a Deputy
Commissioner oI Direct Tax (DCDT)
under section 127;

(76) "Deputy
Director" means a
person appointed to
be a Deputy Director
oI Income-tax under
section 127;

(76) "Deputy
Director" means a
person appointed to
be a Deputy Director
oI Direct Tax
(DDDT) under
section 127;

(130) "Income-tax
OIIicer" means a
person appointed to
be an Income-tax
OIIicer under section
127;

(130) "Income-tax
OIIicer" means a
person appointed to
be an Direct Tax
OIIicer (DTO) under
section 127;

(138) "Inspector oI
Income-tax" means a
(138) "Inspector oI
Income-tax" means a

person appointed to
be an Inspector oI
Income-tax under
section 127;
person appointed to
be an Inspector oI
Direct Tax under
section 127;
Readers are requested to send their Ieed back
through comments and discussion about the
article.
Tax Management India .Com
Statutory Provisions
DIRECT TAXES CODE, 2010
Appointment and control oI income-tax
authorities.
127. (1) The Central Government may appoint
such persons as it thinks Iit to be income-tax
authorities.
orders oI the Central Government regulating the
conditions oI service oI persons in public
services and posts, the Central Government may
authorise the Board, or a Director-General, a
ChieI Commissioner or a Director or a
Commissioner to appoint income-tax authorities
below the rank oI an Assistant Commissioner.
(3) Subject to the rules and orders oI the
Central Government regulating the conditions oI
service oI persons in public services and posts,
an income-tax authority authorised in this behalI
by the Board may appoint such executive or
ministerial staII as may be necessary to assist it
in the execution oI its Iunctions.
that any income-tax authority or authorities
speciIied in the notiIication shall be subordinate
to such other income-tax authority or authorities
as may be speciIied in such notiIication.
CHAPTER XIX
INTERPRETATIONS
AND CONSTRUCTIONS
Interpretations in this Code.
314. In this Code, unless the context otherwise
requires
22) "Assessing OIIicer" means the Income Tax
OIIicer, Assistant Commissioner, Assistant
Director, Deputy Commissioner, Deputy
Director, Joint Commissioner, Joint Director,
Additional Commissioner or Additional
Director, who is vested with the relevant
jurisdiction by virtue oI direction or order issued
under section 130 or any other provision oI this
Code;
(25) "Assistant Commissioner" means a person
appointed to be an Assistant Commissioner oI
Income-tax under section 127;
(26) "Assistant Director" means a person
appointed to be an Assistant Director oI
(75) "Deputy Commissioner" means a person
appointed to be a Deputy Commissioner oI
(76) "Deputy Director" means a person
appointed to be a Deputy Director oI Income-
tax under section 127;
(77) "Director" means a person appointed to
be a Director oI Income-tax under section 127;
(78) "Director General" means a person
appointed to be a Director General oI Income-
tax under section 127;
(79) "director", "manager" and "managing
agent", in relation to a company, have the
meanings respectively assigned to them in the
Companies Act, 1956;
(130) "Income-tax OIIicer" means a person
appointed to be an Income-tax OIIicer under
section 127;
(138) "Inspector oI Income-tax" means a person
appointed to be an Inspector oI Income-tax
under section 127;
Dated - ovember 12, 2010
DIRECT TAX CODE 2010- CHARGING
PROVISION- IS THERE AN Y ERROR? IF
SO LET IT BE CORRECTED BEFORE
ENACTMENT.
By: C.A. DEV KUMAR KOTHARI : View
Profile

Relevant links:
Direct Tax Code 2010 section 1 and 2.
Article titled "DIRCT TAXS COD BILL,
2009 - preamble oI the code must be modiIied
to reIlect correct objectives and scope".
Provision Remarks/
suggestions.
Preamble To consolidate and
amend the law
The preamble
may be
relating to direct
taxes.

mentioned in
detailed manner
so as to avoid
need to reIer to
earlier
enactments
relating to
Direct Taxes
and to avoid
disputes on the
scope oI the
enactment as
reIlected in the
preamble or
objects oI the
enactment.
S.1 Short title, extent
and
commencement.
(1) This Act may be
called the Direct
Taxes Code, 2010.
IIective date
oI the
enactment is
01.04.2012 that
means the code
will apply Irom
any Financial
(2) It extends to the
whole oI India.
(3) Save as
otherwise provided
in this Code, it shall
come into Iorce on
the 1st day oI April,
2012.
Year beginning
on 01.04.2012
and any
subsequent
Iinancial year.
Thus the FY
2012-13 shall
be the Iirst year
oI assessment
(base year)
under the Code.
There will be
no concept oI
Previous Year
(PY) and
Assessment
Year (AY) in
the new Code.
The previous
year 2011-12
will be
governed by the
Income-tax
Act, 1961 Ior
which income
will be
assessable as
income oI Asst.
Year 2012-13.
Thus, we will
have FY 2012-
13 as
assessment year
under I.T. Act
and FY 2012-
13 as Base year
under the
Direct Tax
Code.
CHAPTR
II
BASIS OF
CHARG
Heading oI
Chapter
Liability to 2. (1) In accordance Creation oI
pay, and
charge oI,
income-tax.
with the provisions
oI this Code, every
person shall be
liable to pay
income-tax in
respect oI his total
income oI the
Iinancial year.
liability very
person shall be
liable to pay tax
on his total
income oI the
Iinancial
year.
(2) Subject to the
provisions oI this
Code, income-tax,
including additional
income-tax, shall be
charged in respect
oI the total income
oI a Iinancial year
oI every person.
Charge oI tax
on total income
oI FY
(3) Where the
income-tax reIerred
to in sub-section (2)
is to be charged in
respect oI the
income oI a period
Charge on
income Ior any
part oI the FY
or income oI a
period other
than the FY.
other than the
Iinancial year, the
income-tax Ior such
period shall be
charged
accordingly.
(4) The income-tax
reIerred to in sub-
section (2) shall be
charged at the rate
speciIied in the
First Schedule in
the manner
provided therein.
This does not
cover cases
where income
Ior any part oI
the FY is
charged under
Sub-section (3)
(5) In respect oI the
income chargeable
under sub-section
(2), income tax
shall be deducted or
collected at source
or paid in advance,
in accordance with
the provisions oI
This does not
cover cases
where income
Ior any part oI
the FY is
charged under
Sub-section (3)
this Code.
(6) The
chargeability oI
income-tax on the
income oI a
Iinancial year under
the Ioregoing
provisions shall be
determined in
accordance with the
provisions oI this
Code as they stand
on the 1st day oI
April oI that
Iinancial year.
The law as
stand on the
Iirst day oI the
FY will be
applicable as to
chargeability oI
tax Ior income
oI any FY.
Observations:
Preamble:
arlier an article with title "DIRCT TAXS
COD BILL, 2009 - preamble oI the code must
be modiIied to reIlect correct objectives and
scope". Was webhosted on this website. The
views expressed in the said article are applicable
to DTC 2010 also and it is suggested that the
preamble and objects may be mentioned in
detailed manner so as to avoid need to reIer to
earlier enactments relating to Direct Taxes and
to avoid disputes on the scope oI the enactment
as reIlected in the preamble or objects oI the
enactment.
We Iind that in sub-section (1) a liability is
imposed on every person to pay income tax on
his income oI the FY. There is no liability
creation when the income is Ior a period other
than the FY though we Iind that separate charge
is provided in sub-section (3)- is this not a case
oI anomaly likely to create litigation? When
liability is not created Ior a period other than the
FY, how charge can be made?
In sub-section (2) charge is created Ior income
oI the entire FY. Sub-section (3) creates charge
when tax is payable on income oI any part oI the
FY.
In sub-sections (4) and (5) also only cases
Ialling under sub-section (2) that is entire FY
are covered and the cases Ialling under sub-
section (3) relating to part oI the FY or a period
other than the FY are not covered. ThereIore, a
question may arise as to what will be the rate oI
tax and provisions relating to TDS / TCS when
income oI a period other than the FY is to be
charged to tax.
The issues may be examined and draIting errors,
iI any, may be corrected, to avoid disputes and
then amendment in the law.
THE DIRECT TAXES CODE, 2010
A
BILL
To consolidate and amend the law relating to
direct taxes.
B it enacted by Parliament in the Sixty-Iirst
Year oI the Republic oI India as Iollows
CHAPTR I
Short title, extent and commencement.
1. (1) This Act may be called the Direct Taxes
Code, 2010.
(2) It extends to the whole oI India.
(3) Save as otherwise provided in this Code,
it shall come into Iorce on the 1st day oI April,
2012.
CHAPTER II
BASIS OF CHARGE
Liability to pay, and charge oI, income-tax.
2. (1) In accordance with the provisions oI this
Code, every person shall be liable to pay
income-tax in respect oI his total income oI the
Iinancial year.
(2) Subject to the provisions oI this Code,
income-tax, including additional income-tax,
shall be charged in respect oI the total income oI
a Iinancial year oI every person.
(3) Where the income-tax reIerred to in sub-
section (2) is to be charged in respect oI the
income oI a period other than the Iinancial year,
the income-tax Ior such period shall be charged
accordingly.
(4) The income-tax reIerred to in sub-section
(2) shall be charged at the rate speciIied in the
First Schedule in the manner provided therein.
(5) In respect oI the income chargeable under
sub-section (2), income tax shall be deducted or
collected at source or paid in advance, in
accordance with the provisions oI this Code.
(6) The chargeability oI income-tax on the
income oI a Iinancial year under the Ioregoing
provisions shall be determined in accordance
with the provisions oI this Code as they stand on
the 1st day oI April oI that Iinancial year.
Dated - October 31, 2010
EALTH TAX PROVISIONS UNDER
DIRECT TAX CODE

Chapter X in Part oI the Direct Tax Code,
2010 deals with the wealth tax. Section 112(1)
oI the Direct Tax Code ('Code' Ior short)
provides that subject to the provisions oI this
code, every person, other than a non proIit
organization, shall be liable to pay wealth tax on
the net wealth on the valuation date oI a
Iinancial year. The valuation date Ior the
purpose oI wealth tax is 31st day oI March oI
the Iinancial year. The term 'person' is deIined
under Section 314(184) oI the Code. According
to this section the term 'person' includes-
A) An individual;
B) A Hindu undivided Iamily;
C) A company;
D) A co-operative society or any other
society;
) A Iirm;
F) A non proIit organization;
G) A body oI individuals;
H) A local authority;
I) very artiIicial juridical person, not
Ialling within any oI the preceding sub clauses.
Whether or not the society, Iirm or organization,
association, body, local authority or artiIicial
juridical person was Iormed or established or
incorporated with the object oI deriving income.
SPECIFIED ASSETS:
For the computation oI wealth tax the aggregate
oI the value on the valuation date oI all
speciIied assets, wherever located, belonging to
the person will be taken into account. The
speciIied assets shall be the Iollowing as
indicated in Section 113(2) oI the code
Any building or land appurtenant thereto
(hereinaIter reIerred to as 'house') used Ior any
purpose. The 'house' shall not include the
Iollowing, namely-
O A house meant exclusively Ior residential
purposes allotted by a company to an employee;
O Any house Ior residential or commercial
purposes which Iorms part oI stock-in-trade;
O Any house which the assessee may occupy
Ior the purposes oI business carried on by him;
O Any house that has been let-out Ior a
minimum period oI three hundred days in the
Iinancial year;
O Any house in the nature oI commercial
establishments or complexes.
Any Iarm house situated within 25
kilometers Irom local limits oI any municipality
or municipal corporation by whatever name
called or a Cantonment Board;
Any urban land;
Motor car, yacht, boat, helicopter and aircraIt
other than those used by the assessee in the
business running them on hire or as stock-in-
trade;
Jewellery, bullion, Iurniture, utensils or any
other article made wholly or party oI gold,
silver, platinum or any other precious metal or
any alloy containing one or more oI such
precious metals, other than those used by the
assessee as stock-in-trade;
Archaeological collections, drawings,
paintings, sculptures or any other work oI act;
Watch having value in excess oI IiIty
thousand rupees;
Cash in hand, in excess oI two lakh rupees,
oI individuals and Hindu undivided Iamilies;
Deposit in a bank located outside India, in
case oI individuals and Hindu undivided
Iamilies, and in the case oI other persons any
such deposit not recorded in the books oI
account;
Any interest in a Ioreign trust or any other
body located outside India, whether
incorporated or not, other than a Ioreign
company; and
Any equity or preIerence shares held by a
resident in a controlled Ioreign company, as
reIerred to in the twentieth schedule.
The value oI any speciIied asset, other than
cash, shall be determined in such manner as
may be prescribed.
The speciIied assets shall not include the
Iollowing
Any one building in the occupation oI a
Ruler, being a building which immediately
beIore the commencement oI the Constitution
(Twenty-sixth Amendment) Act, 1971, was his
oIIicial residence by virtue oI a declaration by
the Central Government under paragraph 13 oI
the Merged States (Taxation Concession) order,
1949, or paragraph 15 oI the Part B States
(Taxation Concessions) Order, 1950;
Jewellery in the possession oI any Ruler, not
being his personal property, which has been
recognized as his heirloom-
O By the Central Government beIore the
commencement oI the Wealth Tax Act, 1957
(27 oI 1957), as it stood beIore the
commencement oI this code; or
O By the Board at the time oI his Iirst
assessment to wealth-tax under the Wealth Tax
Act, 1957 (27 oI 1957), as it stood beIore the
commencement oI this Code;
The value oI the assets located outside India,
iI the person is a non resident; and
Any one house or part oI a house or on
vacant plot oI land not exceeding Iive hundred
square meters oI area belonging to an individual
or a Hindu undivided Iamily.
NET EALTH:
Wealth tax is computed on the net wealth. The
speciIied assets as discussed shall be deemed to
be belonging to the person, being an individual,
and included in computing his net wealth, iI
such assets, as on the valuation date are held,
whether in the Iorm they were transIerred or
otherwise. Section 114(1) gives the list oI the
same as Iollows
By the spouse oI such individual to whom
such asset has been transIerred by him, directly
or indirectly, otherwise than Ior adequate
consideration or in connection with an
agreement to live apart;
By a minor child, not being a person with
disability or person with severe disability, oI
such individual; This asset shall be included in
the net wealth oI-
O The parent who is the guardian oI the
minor child; or
O The parent whose net wealth is higher, iI
both the parents are guardians oI the child.
By a person to whom such asset has been
transIerred by the individual, directly or
indirectly, otherwise than Ior adequate
consideration Ior the immediately or deIerred
beneIit oI the individual or his spouse; a transIer
shall be deemed to be revocable iI-
O It contains any provision Ior the re-
transIer, directly or indirectly, oI the whole or
any part oI the income or asset to the transIeror;
or
O It, in any way, gives the transIeror a right
to re-assume power directly or indirectly, over
the whole or any part oI the income or asset.
By a trust to whom such asset has been
transIerred by the individual, iI the transIer is
revocable during the liIe time oI the beneIiciary
oI the trust;
By a person, not being a trust, to whom such
asset has been transIerred by the individual, iI
the transIer is revocable during the liIetime oI
the person; and
By a Hindu undivided Iamily by way oI any
converted property.
Section 114(2) provides that the provisions oI
Section 114(1) shall not apply in respect oI such
speciIied asset as has been acquired by the
minor child out oI his income reIerred to in Sec.
9(1) and which are held by him on the valuation
date.
The person shall, notwithstanding anything in
this Code or in any other law Ior the time being
in Iorce, be deemed to be the owner oI a
building or part thereoI, iI he is a member oI a
co-operative society, company or other
association oI persons and the building or part
thereoI is allotted or leased to him under a house
building scheme oI the society, company or
association, as the case may be.
This clause Iurther provides that the holder oI an
impartible estate shall be deemed to be the
individual owner oI all the properties comprised
in the estate. The value oI any assets transIerred
under an irrevocable transIer shall be liable to
be included in computing the net wealth oI the
transIeror in the year in which the power to
revoke vests in him.
COMPUTATION OF NET EALTH:
Section 113(1) provides the method Ior
calculation oI net wealth chargeable to wealth
tax. The net wealth oI a person shall be the
amount computed in accordance with the
Iormula noted below
et wealth A- B
Where A is the aggregate oI the value on the
valuation date, oI all the speciIied assets,
wherever located, belonging to the person; and
B is the aggregate oI the value on the valuation
date, oI all the debts, owed by the person, which
have been incurred in relation to the speciIied
assets.
TAX ON NET EALTH:
The wealth tax shall be charged in respect oI the
net wealth on the valuation date oI a Iinancial
year at the rate as detailed below
1.Where the net wealth as on the valuation
date does not exceed Rs. One crore - IL;
2.Where the net wealth, as on valuation date
exceed Rs. One crore - 1 oI the amount
which the net wealth exceeds one crore
rupees.
The liability to wealth tax shall be discharged by
payment oI pre paid taxes in accordance with
the provisions oI this Code. The wealth tax
charged under this section shall be collected
aIter allowing credit Ior pre paid taxes, iI any, in
accordance with the provisions oI this code.
REPEALING OF EALTH TAX ACT,
1957:
Section 318(1) repealed the Wealth Tax Act,
1957 (27 oI 1957). Section 318(2) provides that
notwithstanding the repeal oI wealth tax-
Where a return oI wealth has been Iiled
beIore the commencement oI this code by any
person Ior any assessment year, proceedings Ior
the assessment oI that person Ior that year may
be taken and conIirmed as iI this code had not
been enacted;
Where a return oI wealth is Iiled aIter the
commencement oI this code, otherwise than in
pursuance oI a notice under Sec. 17 oI the
repealed wealth tax Act, by any person Ior the
Iinancial year ending on 31.03.2012 or any
earlier year, the assessment oI that person Ior
that year shall made in accordance with
procedure speciIied in this code;
Any proceeding pending on the
commencement oI this code beIore any wealth
tax authority to Appellate Tribunal etc., shall be
continued under the repealed Wealth Tax Act as
iI this code had not been enacted;
Where in respect oI any assessment year
aIter the year ending 31.03.2001 -
O A notice issued under Sec. 17 oI the
repealed Wealth Tax Act has been issued beIore
the commencement oI this code, the
proceedings in pursuance oI the notice may be
continued and disposed oI as iI this code had not
been enacted;
O Any wealth liable to tax has escaped
assessment within the meaning oI that
expression in Section 159 and no proceedings
under Sec. 17 oI the repealed wealth tax in
respect oI any such wealth are pending at the
commencement oI this code, a notice under
Section 159 may be issued with respect to that
Iinancial year and all the provisions oI this Code
shall apply accordingly;
Any proceeding Ior the imposition oI a
penalty in respect oI any assessment completed
beIore 01.04.2012 may be initiated and any such
penalty may be imposed under the repealed
wealth tax code as iI this code had not been
enacted;
Any election or declaration made or option
exercised by an assessee under any provision oI
the repealed wealth tax act and in Iorce
immediately beIore the commencement oI the
code shall be deemed to have been an election
or declaration made, or option exercised, under
the corresponding provision oI this code;
Where, in respect oI any assessment
completed beIore the commencement oI this
Code, a reIund Ialls due aIter such
commencement in the payment oI any sum due
under such completed assessment, the provision
oI this code relating to interest payable by the
Central Government on reIunds and interest
payable by the assessee Ior deIault shall apply;
Any sum payable under the repealed Wealth
Tax Act may be recovered under this Code, but
without prejudice to any action already taken Ior
the recovery oI such sum under such repealed
Acts;
Any agreement entered into under Sec. 44A
oI the repealed Wealth Tax Act shall, so Iar as it
is not inconsistent with Sec. 291 oI this Code,
be deemed to have been entered into Section
291 oI this Code and shall continue in Iorce
accordingly;
Any order made under the provisions oI the
repealed wealth tax act shall, so Iar as it is not
inconsistent with the corresponding provisions
oI this Code, be deemed to have been made
under the corresponding provisions and shall
continue in Iorce accordingly;
Where the period prescribed Ior any
application, appeal, reIerence or revision under
the repealed Wealth Tax Act, had expired on or
beIore the commencement oI this Code, nothing
in this code shall be construed as enabling any
such application, appeal, reIerence or revision to
be made under this Code by reason only oI the
Iact that a longer period thereIore is prescribed
or provision is made Ior extension oI time in
suitable cases by the appropriate authority.
Dated - October 25, 2010
DIRECT TAX CODE BILL ..intrdocued!

INTRODUCTION:
The Direct Taxes Code Bill, 2010
The Direct Tax Code is expected to be
introduced with eIIect Irom 1
st
April, 2010 since
the draIt code has been put open to the people
Ior their comments. Comments were received
Irom various corners on draIt code. Accordingly
the Government has issued revised draIt code
considering the comments oI the public. The
Government was also in the plea to introduced
Direct Tax Code, replacing the existing Income
Tax Act and Wealth Tax Act with eIIect Irom
1
st
April, 2010 and decided to table the same in
the Parliament in the current sessions.
As planned the Direct Tax Code Bill has been
introduced in the Lok Sabha on Monday, the
30
th
August, 2010. The present bill is bulkier
than the present Income Tax Act, having 319
sections and twenty two schedules. The bill has
20 chapters divided into nine parts. Some oI the
Ieatures oI the bill are as Iollows
For individuals:
The income slab in the new bill Ior individuals
is as Iollows
INCOME
SLAB
TAX RATE
Up to Rs. 2 lakh IL
Rs. 2 lakh - 5
lakh
10 on income exceeding 2
lakh
Rs. 5 lakh - Rs.
10 lakh
Rs. 30,000 20 on income
exceeding Rs. 5 lakh
Over Rs. 10
lakh
Rs. 1,30,000 30 on income
exceeding Rs. 10 lakh
According to the new bill the women could not
enjoy the current special exemptions over and
above what men get with eIIect Irom 1
st
April,
2012. Only senior citizens will get extra relieI.
The annual income oI up to Rs.2.5 lakh is not to
be paid tax.
Investment limit - Rs. 1 lakh as existing at
present;
Additional investment amount Rs. 50,000 is
extended to spend on liIe insurance premia,
tuition Iee Ior children and health insurance
payment;
Rs.1.5 lakh interest paid on home loans as
deduction;
Continuing the xempt-xempt-xempt
system oI taxation, implying there will be no tax
when an individual withdraws his savings Irom
provident Iunds, pension Iund, commutation and
post retirement schemes;
The biggest beneIiciaries oI the DTC bill, as
correctly said by Shri S.S. . Moorthy, the
CBDT Chairman, will be the lower and middle-
middle class since the exemption limit is
increased to Rs. 2 lakh and the most oI existing
tax payers are in the income slabs up to Rs. 5
lakh.
For Companies:
The current tax rate 30 will be continued;
There will be no surcharge;
The Minimum Alternative Tax (MAT) rate
will be 20 and levied on book proIits;
Companies can carry Iorward MAT credit
Ior 15 years;
In case oI Ioreign companies the tax rate will
be 30;
For Ioreign companies there will also a
branch proIits tax oI 15;
For Special Economic Zones:
S developers will continue to get current
tax breaks Ior all the zones notiIied up to the
end March 2012;
The existing tax breaks will continue to be
available to S units, iI they commence
operations beIore the end oI March 2014;
MAT and dividend distribution tax will be
applicable on sezs and S units;
International Taxation:
The original draIt code proposed to take away
the treaty override beneIit. It also suggested that
neither the treaty nor the code shall have
preIerential status. It was also proposed that
provision oI treaty or the code whichever is later
in time, will prevail over the other.
ow the same has been changed. The new bill
restored the position oI allowing the treaty
override - an assessee can choose between
domestic law or treaty provisions, whichever is
beneIicial.
Long term capital gains:
The draIt code seeks to exempt long term capital
gains Irom the sale oI shares through stock
exchange. The present seeks to bring long term
capital gains to tax under a graded system.
Securities transactions tax:
The Securities transactions tax will continue as
per the new bill.
ealth Tax:
It is proposed to levy a rate oI one per cent Ior
wealth exceeding Rs. 1 crore.
Dividend Distribution Tax:
It is proposed to levy a rate oI 5 by way oI
dividend distribution tax.
Others:
The new bill discusses with a number oI
subjects including income tax, dividend
distribution tax, tax on distributed income,
branch proIit tax, wealth tax, prevention oI
abuse oI the code, tax management, general
provisions and interpretations oI the code. The
sections deal with many issues such as-
Basis oI charge oI the tax;
Computation oI total income;
Foreign tax credit;
Income Irom business and residuary sources;
Capital gains;
Tax incentives;
Special provisions relating to the
computation oI total income oI non proIit
organizations;
Tax deduction at source;
Advance tax;
Payment oI wealth tax;
Recovery, prosecution and penalties.
Conclusion:
The new bill appears more diluted than the draIt
bill. It will be expected that the bill is to go to
Parliamentary Standing Committee Ior review.
The delay in implementation oI the bill is due to
the rules are to be Iramed based on the new bill.
The Department has to give training to be
imparted on the income tax oIIicials on both the
income tax soItware and the law itselI. Many a
comment on the bill, new suggestions may come
Irom various experts, stakeholders,
proIessionals and it may be expected that the
bill will still undergo changes till it becomes an
Act.
Dated - September 6, 2010
REVISED DISCUSSION PAPER-THAT
SOOTHES THAT SEETHES
By: vijay kalia : View Profile

The revised discussion paper on direct tax code
has been released on 15
th
oI June, 2010 aIter the
stormy criticism oI the Iirst discussion paper
which was released in August, 2009. Most oI
the concerns that have been raised have been
taken care oI and Iew oI the taxation aspect not
conceived originally have also slithered again in
to the realm oI taxation under DTC. It appears
that the government is biased with the revenue
raising which it wishes to calibrate at each go
and not intending to sacriIice the same.
The Security Transaction Tax is again peeping
to seek entry in to DTC as per the revised
discussion paper though the Iirst discussion
paper sought to abolish the same. One wonders
how this rich source oI revenue could be
abolished in the previous exercise as it could
establish audit trail oI share transaction besides
Iilling the tax kitty too.
Introductory: The revised discussion paper is
divided in to speciIied paragraph such that the
Iirst paragraph takes us back to the DTC
proposals and the second paragraph brings out
the concerns that have arisen in various Iorums
and the third paragraph settles the issues in the
manner that appeals most to the Iramers oI the
proposed legislation though some purposeIul
outcome have seen the light oI the day too. The
article just tries to tracks three aspects herein
below with some comments that Ilashes across
aIter reading the text.
Issues primary addressed in the revised
discussion paper are in respect oI the Iollowing
1.MAT 2.T as against 3. Taxation oI
income Irom employment-retirement beneIits
and perquisites. 4. Taxation oI income Irom
House Property. 5. Taxation oI Capital Gains. 6.
Taxation oI ngos 7. S- Taxation oI existing
units 8. Concept oI residence Ior companies
incorporated outside India 9. DTAA as against
the domestic laws 10. Wealth Tax 11. GAAR-
General Anti-avoidance Rules.
1. Minimum Alternate Tax:
Chapter XIII oI DTC dealt with it which
proposed MAT on the basis oI "value oI gross
assets" based on the Iact that the tax incentives
are excessive having reIerence to the
computation oI the total income resulting in low
or zero tax and that every business aspires to
attain minimum return on the investment made
by it in the business. ThereIore, a presumptive
scheme tax was to be adopted Ior overcoming
such an eventuality.
The revised discussion paper makes way Ior
computing MAT with respect to the book proIits
aIter considering host oI Iactors like MAT credit
denial, impact on loss making companies,
companies that have long gestation period
where the asset based tax would cause
immediate problems that are avoidable by
switch over to book proIits. Reverting to book
proIits is a welcome step in the revised
discussion paper.
The unpleasant aspect in paragraph three in
my view is the stone like silence as to the
carry forward or tax credit in subsequent
years which should have been amply clarified
as the earlier discussion paper said that the
tax so computed would be final. The method
of computation is not spelled out and the
inclusion exclusion of items from book profits
is kept under pale of gloom and darkness, we
all have to stay put till the manner of
computation of such book profits is set out
and keep guessing till the final draft
legislation.
2. Tax Incentive on savings:
The Iirst discussion paper dealt in Chapter XII
oI DTC with the T (xempt-xempt-Tax-
concept oI tax savings. There appears to be
relevant considerations Ior not adopting T
method oI taxation in view oI lack oI social
security system at national level as is present in
most countries which is a distant cry so Iar as
India is concerned. There is no technology back
up Ior the gigantic record keeping in respect oI
more than three crore account holders with no
central authority Ior record keeping to enable
tax deduction at the time oI withdrawal with
segregation oI taxable and non taxable income
and the huge cost that shall be involved that
appears to have been a deterrent to the exercise
as well as easy way out and cost saving too.
The revised paper now Iollows the method
oI taxation Ior government provident Iund,
public provident Iund, and recognised provident
Iund and the pension scheme regulated by the
PFRDA (Pension Fund Regulatory and
Development Authority) and approved liIe
insurers. pre-supposes that such savings
shall be utilised over a long period oI time by
the tax payers and thereIore, the government is
Iraming rules in this regard on uniIorm basis.
It has Iurther been clariIied that the investment
made beIore the date oI commencement oI DTC
in instruments that enjoy method oI
taxation under current law would continue to be
eligible Ior treatment Ior Iull duration oI
the Iinancial instrument.
This is very essential to stipulate the repeal or
savings whenever a new piece of legislation is
introduced so as to bring ease of switchover
from one regime to the other. It dispels doubt
about the continuity or otherwise of the
existing framework. But keep guessing till the
time the rules are out as stated. Only
approved plans of savings have the scope not
all the form of saving included that are
currently in vogue under S.80C as at present.
Tax Incentive from Retirement Benefits or
Perquisites:
Income Irom employment is to be taxed on the
basis oI gross salary as reduced by the
permissible deduction. Salary includes under
Chapter VII oI DTC value oI perquisites, proIits
in lieu oI salary, amount received on voluntary
retirement or termination, leave salary, gratuity,
annuity or pension or any commutation thereoI.
Salary would include rent Iree or concessional
accommodation provided by the employer
whether government or otherwise, value oI any
leave travel concession, amount received on
encashment oI un-availed earned leave on
retirement or otherwise, medical
reimbursements, value oI Iree or concessional
medical treatment paid or provided by the
employer. DTC also stipulated that the RFA
shall be determined Ior all employees including
government employees also in the same manner
as is presently determined with respect to the
employees oI the private sector. It is here that
the Iear oI the government employees could be
assuaged which are allayed later.
It was provided that to be eligible Ior grant oI
exemption in respect oI the speciIied items the
same were required to be deposited in the
Retirement BeneIit Account. These related to
the compensation on voluntary retirement
scheme, amount oI gratuity received on
retirement or death, amount received on
commutation oI pension. The RBA was required
to be kept with the approved intermediaries like
Provident Fund, Superannuation Funds, LiIe
Insurers and the PS-ew Pension System
Trust in accordance with the scheme approved
by the government. It was proposed to exempt
these when deposited in the retirement beneIit
scheme account and also the accretions therein
but to tax them upon withdrawal whenever
made in the year in which such withdrawals
were made under whatever circumstances.
The concerns were shown that existed in the tax
treatment in respect oI tax on savings such as
lack oI social security in the country and that
there is no beneIit as is presently available in
respect oI medical reimbursement or allowance
which makes the taxation aspect very harsh. The
market value would be adopted Ior the
government employees in respect oI the rent
Iree accommodation too would prove harsh. But
this was not expressly so provided in the
discussion paper. Here also the government Ielt
the lack oI institutional mechanism to handle the
huge number oI accounts in the Retirement
BeneIit Scheme and to ensure deduction on each
withdrawal a massive exercise.
Dated - June 20, 2010
Highlights of Revised Discussion paper on
DTC
By: C.A. Surender Gupta : View Profile

(1) MAT will be calculated on 'Book ProIit' as
against the 'Value oI Gross Assets'
(2) Salary - xempt xempt xempt ()
scheme will be applicable Ior GPF, PPF, rpIs,
Pension Scheme, Approved pure liIe insurance
products and annuity schemes instead oI
XMPT XMPT TAX (T)
(3) Retirement BeneIits Account scheme not to
be introduced
(4) Amount received under Gratuity, voluntary
retirement scheme, commutation oI encashment
oI leave will be exempt, subject to speciIied
limits, Ior all employees
(5) Rules Ior valuation oI perquisite to be made
(6) Rent Iree accommodation will not be taxed
at market value
(7) House Property - Rent - Gross rent will not
be computed at a presumptive rate oI six per
cent oI the rateable value or cost oI
construction/acquisition.
(8) In case oI house property which is not let
out, the gross rent will be nil.
(9) In case oI selI occupied property exemption
upto 1.5 Lakhs will be allowed
(10) Capital Gains - Income under the head
'Capital Gains' will be considered as income
Irom ordinary sources in case oI all taxpayers
including non-residents.
(11) Listed equity shares or units oI an equity
oriented Iund held more than one years will be
computed at adjusted rate (a deduction will be
allowed)
(12) Capital gains on other assets held Ior more
than one year will be computed on indexed cost
method basis (base year will be 1.4.2000)
(13) income arising on purchase and sale oI
securities by an FII will be deemed to be income
chargeable under the head 'capital gains'
(14) O-PROFIT ORGAISATIOS (PO)
- o Iresh registration is required Ior existing
npos
(15) The income oI a public religious
institutions and income Irom charitable
activities oI the trust / institution will be exempt
but donor will not be eligible Ior deduction on
account oI donation
(16) 15 (or 10) carryIorward oI surplus will
be allowed
(17) Donation Irom PO to PO will be
considered as application oI income
(18) Basic exemption limit will be provided to
npos
(19) S units -to protect proIit linked
deductions oI units already operating in sezs Ior
the unexpired period will be incorporated.
(20) COMPAY ICORPORATD
OUTSID IDIA - Place oI eIIective
management' to be deIined
(20) passive income earned by a Ioreign
company which is controlled directly or
indirectly by a resident in India will be taxable
(22) DTAA - DTAA will not have preIerential
status over the domestic law in the Iollowing
circumstances- (i) when the General Anti
Avoidance Rule is invoked, or (ii) when
Controlled Foreign Corporation provisions are
invoked or (iii) when Branch ProIits Tax is
levied.
(23) Wealth Tax - wealth tax will be payable by
all taxpayers except non-proIit organizations on
all unproductive assets
(24) GRAL ATI-AVOIDAC RUL to
be implemented with The Iorum oI Dispute
Resolution Panel (DRP)
Source:
Revised Discussion Paper - Direct Tax Code
(DTC) issued as on 15-06-2010
Dated - June 16, 2010
EALTH TAX - UNDER DIRECT TAX
CODE BILL 2009-A CRITICAL
EVALUATION
By: vijay kalia : View Profile

TAXABLE PERSONS AND THRESHOLD
OF Rs. 50 CRORE-EXCEPTING A
DISCRETIONARY TRUST:
The direct tax code is unique in its approach in
so Iar it prescribes a threshold limit oI Rs. 50
Crore. But it is to be understood only in respect
oI two taxable entities namely 1.Individuals
and 2. Hindu Undivided Family. However, the
third taxable entity which is private
discretionary trust is not treated at par Ior this
limit oI basic exemption.
The threshold limit does not apply to
discretionary trusts which shall have to shell out
tax on their net wealth oI any amount which
looks somewhat misplaced in the scheme oI the
DTC Bill, 2009 so Iar as it relates to Part-D oI
Chapter VIII.
The Code prescribes the taxable entities under
S.101 that includes besides, Individual and
HUF, the private discretionary trust. It also
includes the interest oI these persons in
unincorporated bodies, iI any, while computing
their net wealth as per S.103. Unincorporated
Bodies includes Iirms, association oI persons
and body oI individuals as per discussion paper
Chapter-XIV.
The companies which are taxable under wealth
tax are no longer taxable to wealth tax under the
DTC Bill, 2009. AOP were taxable as individual
iI their shares oI members are indeterminate or
unknown under the existing provisions oI
wealth tax but the same is not speciIically
mentioned so by the Code as the interest oI the
participants is only sought to be included in
their net wealth and such aops are not deIined as
a separate taxable class.
EXEMPTIONS:
There are also deeming provisions as is there in
the Wealth Tax Act, 1957 but there are lesser
exemptions when compared to the existing ones
under the present W.T. Act.
The exemption with respect to any one property
is contained under S.102 under clause (I) which
speaks oI a house or a part oI house or a plot oI
land belonging to an individual or HUF which is
acquired or constructed beIore 1st day oI April,
2000. Further, it is a very harsh provision Ior
those who acquire such property on or aIter 1st
oI April, 2000 as they would not be entitled to
avail this exemption. This may be open to
severe criticism.
In the context oI present day when the
government wants to achieve a higher GDP rate
and knowing it quite well that the activities in
the housing and construction sector set a ripple
eIIect on the economy, the non grant oI
exemption to any one built up property or plot
oI land shall have disastrous eIIect and even go
to discriminates one class against the other class
oI same taxable entity.
The net wealth is computed as on the valuation
date in respect oI aggregating oI all assets
wherever located aIter deducting there-Irom the
aggregate oI the value debts as on the valuation
date which the person owes in relation to the
said assets.
There appears to be signiIicant advantage to
have assets out oI debts as also the position
under the present regime than to have assets
without debt obligation in respect oI assets
included in the computation oI net wealth.
There are only six exemptions but the real
exemption that matters to an individual is the
above one in respect oI a house or part oI a
house or a plot acquired or constructed beIore
speciIied date that too is mired or shall be so
mired in controversy. The stalwarts in the Iield
oI taxation have not read too much in to this so
Iar as they believe that current tax threshold
limit is set to too high and is bound to take at
least ninety Iive percent oI the wealth tax
assesses out oI the tax net. The revenues Irom
the wealth tax which was to the tune oI Rs. 144
Crore in 2004-05 increased to Rs. 385 Crore in
2008-09 but in the current scenario oI increased
threshold limit postulated by DTC it is likely to
be very less. The enhanced limit has been set
because oI the reduction in exemptions as per
current taxation policy oI the Iramers.
The exemption in respect oI the property held
under trust by a person Ior carrying oI permitted
welIare activities and the one in respect oI
interest in coparcenary property oI any HUF oI
which the person is a member are consequential
as HUF is taxed as an entity comprising oI
members.
Building or jewellery being his heirloom and in
possession oI a Ruler is excluded in speciIied
circumstances.
There is no inclusion in respect oI value oI
assets located outside India which belong to
HUF or Individual when these persons are non
resident in India or when person is non-citizen
oI India. Here status and citizenship matters
when assets are located outside India.
VALUATON OF ASSETS:
The valuation oI assets other than cash shall be
determined in prescribed manner.
The valuation oI Iinancial assets shall be at cost
or market price whichever is lower as per the
discussion paper.
The exclusion oI cash in hand up to Rs. 50000
as presently provided in Wealth Tax Act., 1957
is not there in the Direct tax Code Bill, 2009.
STOCK IN TRADE CONSPICUOUSLY
MISSING IN DTC BILL, 2009:
While it is pertinent to observe that the
discussion paper includes under exempted
assets, the assets used as stock in trade but the
same does not Iind any mention in the DTC Bill,
2009. This appears to be an anomaly which
appears to have crept in unknowingly. This
DTC Bill had been Iramed in entire exclusivity
and put in public domain later on thereIore the
results are not Iar to seek.
DEEMING PROVISIONS:
The deeming provisions are contained in S.103
oI the Code which seeks to include in the net
wealth oI the person the assets transIerred to
spouse or minor child excluding, being a person
with disability. The clause is not suIIiciently
worded iI it is compared to the wordings used in
S. 8(1)(b) which are more clear in respect oI
disability oI the minor. The language in S.
8(1)(b) is more direct and meaningIul.
But there is one signiIicant aspect to observe
here in clause (ii) oI (a) oI S. 103(1) as in
respect oI minor child, the clause does not speak
oI inadequate consideration. ThereIore the
assets held by minor in whatever manner are to
be includible in the net wealth oI the person
except the ones reIerred to in S. 8(1) (b) (i) and
(ii) acquired through special skill or manual
labour oI the minor.
Clause (iii) oI (a) to S. 103(1) while speaking oI
transIer by person oI assets without
consideration also reIers to the spouse oI the
individual and not to the minor oI such
individual. Deeming provision reIers to transIer
to a trust by the individual iI the transIer is
revocable during the liIe time oI the beneIiciary.
In case oI transIer to a person other than trust by
the individual and the transIer oI assets is
revocable also, Ialls in deeming provision.
Value oI assets transIerred to son's wiIe or Ior
the beneIit oI son's wiIe where transIerred to
any person or association oI person is blissIully
not incorporated under the Direct Tax Code Bill,
2009.
The value oI any converted property is to be
included in the net wealth under S. 103(b) but
the opening para in (a) oI S.103 also speaks oI
the asset held in the Iorm they were transIerred
or otherwise.
The rate oI tax at which the net wealth oI
taxable person shall be charged is 0.25 instead
oI the present rate oI 1 over threshold limit oI
Rs. 30lacs.
CONCLUSION:
DTC Bill, 2009 had been prepared in utmost
secrecy had resulted in controversies oI
avoidable nature some draIting errors which
would have not erupted had there been proper
discussions within the ministry and the
concerned departments like CBDT, the OIIicers
oI the Revenue Department. The wealth tax
threshold limit with exemption granted to any
one property acquired or held beIore 1st oI
April, 2000, though disastrous cut oII date, is
bound to erode the tax base. The next best thing
to happen is the simultaneous reduction oI tax
rate Irom 1 to 0.25 oI taxable net wealth
which also would hamper tax revenues Irom
wealth tax. The present revenues are not very
signiIicant. In the present circumstances is it
worthwhile to have the wealth tax at all or allow
the non Iilers or non declarers to enjoy complete
immunity with such a higher threshold limit!
Dated - January 9, 2010
Some points from the Direct Tax Code Bill
,2009 indicating complexities and general tax
matters.
Profile

The draIt Tax code Bill is expected to be placed
and discussed in the Parliament in the ensuing
winter session and iI it is enacted aIter Iollowing
due process oI legislation it will be implemented
Irom the assessment year 2011.
The Direct Tax Bill, 2009 is in the process oI
reading, review, inviting suggestions and
objections, considerations and reconsideration
oI proposed clauses in view oI rethought,
suggestions, objections, and review beIore it is
Iinalized. As indicated in the Iorward to the Bill,
it is not to re-enact the existing laws or to amend
the existing laws relating to direct taxes. The
Bill is written as a new measure oI
simpliIication and rationalization oI provisions
on a new slate. ThereIore, it is advised to avoid
comparison with existing provisions.
There are 16 Chapters, 285 sections and 18
Schedules in the new Code. There are lot oI
changes in arrangements oI various provisions,
and one has to be very careIul in Iinding out all
relevant provisions in respect oI a simple matter.
This is because the relevant provisions may be
available in bits and bytes spread over in various
chapters, various sections and various
schedules. This is likely to make the work oI tax
compliance and administration tougher than it is
at present.
The history oI tax legislation and old cases laws
will also remain important Ior interpretation oI
the new Code also.
Definition and interpretation sections are
given at last.
The new trend noticed in draIting is that
sections Ior deIinitions and interpretation are
given as last two sections (but beIore Schedules
to the Code. Usually we Iind these aspects in
very beginning oI any enactment in India. We
Iind the Iollowing chapters and sections in this
regard.
CHAPTER-XVI
284. DeIinitions B-159
285. Interpretation B-191
However, we Iind several deIinition clauses in
other provisions.
Heads of income to be revised.
As per section 12 oI the new code there will be
more heads oI income considered under two
broad heads- namely special sources and
ordinary sources. Special sources are all those
items which are listed in the Table in rule 3 oI
the First Schedule. Income Irom these special
sources shall be as per provisions oI Schedule
XI on the new code.
As per Section 14 ordinary sources are the
Iollowing
A. Income Irom employment.
B. Income Irom house property.
C. Income Irom business.
D. Capital gains.
. Income Irom residuary sources.
It appears that income Irom proIession is not
mentioned either in ordinary or special sources.
Does the GOI want to exempt proIessionals or
there are intricacies to be Iound in some other
provision like deIinition oI business.
Complexities:
It is apparent that the complexities will be much
higher than in the existing tax laws.
Here are some salient points oI the Bill
concerning general taxpayers
Liability - The liability to pay income-tax, or
the chargeability thereoI, under the Ioregoing
provisions, Ior any Iinancial year, shall be
determined in accordance with the provisions oI
this Code as they stand on the 1st day oI April
immediately succeeding the last day oI the
Iinancial year.
ThereIore, the concept oI previous year as say
Iirst Iinancial year or / say FY 2010 -11 and
assessment year as the second Iinancial year/
say FY 2011-12 shall continue.
It appears that there will be overall reduction in
rate oI tax with expectation oI the Government
that public will also co-operate in compliance
and payment oI tax at lower rate. Once tax rate
is reduced it is expected that there will be no
need oI introducing income earned by A as
income earned by B.
Here are some Highlights of the Draft Tax
Code bill:

1. Lowers the incidence oI tax on corporate and
individual incomes
2. Incorporate wealth tax and capital gains tax
in the same enactment.
3. Income tax will be on expanded base to
include value oI perks, some giIts, proIit in lieu
oI salary and capital gains. Agricultural income
shall enjoy exemption.
4. Removal oI most exemptions.
5. All long-term savings to come under T
6. Tax exemption to PPF and other pension
schemes on withdrawals oI sums accumulated
up to March 31, 2011. Accumulation thereaIter
it will be taxable on withdrawal.
7. Security transactions tax to be withdrawn
and capital gains to be taxed in new Iormat.
8. Capital gains on shares and securities to be
taxed as income.
9. Distinction between long-term and short-term
capital assets to go.
10. Wealth tax threshold exemption will be Rs.
50 crores.
11. Wealth to be taxed on net basis; Amount in
excess oI Rs50 crores will be taxed 0.25
12. Moves the base year Ior calculation oI
capital gains tax to April 2000 Irom 01.04.1981.
13. Incentive by way oI tax savings investments
will be up to Rupees 3 lakhs
14. Few and higher income tax slabs will make
rate structure simple and lower overall tax
payable.
15. Tax rates Ior individuals/ HUF
Up to Rs1.6 lakh o tax
10 tax Ior income between Rs160,000
and Rs10,00,000
20 tax Ior income between Rs10,00,000
and Rs25,00,000
30 tax Ior income over Rs25,00,000
16. Tax incentive on housing loans etc. Will be
removed
17. Dividend will continue to be tax-Iree in the
hands oI investors on payment oI additional tax
by distributor oI dividend.
18. IIective corporate tax rate at 25 with no
surcharge or cess
19. MAT in Iorm oI WT to be levied on gross
assets as against book proIits now this will in
essence a tax on wealth.
20. MAT to be 0.25 Ior banking companies
and 2 Ior others on wealth.
21. MAT carry Iorward to discontinue - this also
support that MAT will be in nature oI WT.
22. Business losses to be carried Iorward
indeIinitely however, subject to complexities.
23. o tax deduction on interest payable on any
government security- the rate oI interest will
generally be lower so these interest should be
exempted. There is no use oI paying higher
interest and levying tax.
24. Wealth tax liability to be discharged by
payment oI prepaid taxes.
25. Income Irom certain transIers not to be
treated as capital gains to continue in diIIerent
manner.
26. Rationalization oI taxes Ior all non-proIit
organizations but will involve complexities.
Dated - August 19, 2009
Direct Tax Code Decoded
By: R&PM: EDELMAN : View Profile

Sandip Mukherjee and Dinesh Khator
Partners, pwc

While pronouncing the Budget 2009 on 6
th
July
2009, the present Finance Minister (FM) Pranab
Mukherjee had promised to unveil the new
Direct Tax Code (DTC) within 45 days. True to
his promise, the draIt DTC was released Ior
public comment, debate and deliberation on
August 13, 2009.

The Code is the brainchild oI erstwhile FM, Mr.
P. Chidambaram and its stated objectives are
improving the eIIiciency and equity oI tax
system by moderating tax rates and expanding
the tax base, removing ambiguity and providing
stability in the tax regime and reduce litigation.

The Code shall replace the Iive-decade old
Income-tax Act ('the Act') Irom FY 2011
onwards, and true to its promise, proposes to
make sweeping and radical changes to the
taxation Iramework in India. There are many
Ieatures oI the Code such as
rationalization/reduction oI tax rates, removal oI
proIit based exemptions to introduce investment
based exemptions, T scheme oI taxation Ior
savings instruments, introduction oI general
anti-avoidance measures, so on and so Iorth.

First and Ioremost, the Cope proposes to reduce
the corporate tax rate to 25 Ior domestic as
well as Ioreign companies, with unlimited carry
Iorward oI business losses. However, the
Ioreign companies would be required to pay
additional tax oI 15 as branch proIits tax on
branch proIits (i.e. Total income as reduced by
corporate tax). A status-quo situation has been
maintained on dividend distribution tax Ior
domestic companies 15.

The Code also proposes to widen the tax
residency base, by amending the deIinition oI
'resident' to even include Ioreign companies
partly managed in India. Further, with a view to
increase the tax base, the MAT liability has
been transitioned Irom 'book proIit based
taxation' to 'gross assets based taxation'. The
earlier rate oI 15 on book proIits has been
changed to 2 on the value oI gross assets, with
no credit Ior MAT in subsequent years. The
change would mean that virtually all companies
would now be liable to pay MAT on the basis oI
assets. This is going to have Iar reaching
implications on capital intensive industries as
MAT would now be payable even in the start-up
years, despite book losses.

The export incentives or proIit linked incentive
schemes will cease to exist and they will be
replaced by investment based incentive
schemes. However, the existing provisions
relating to proIit linked incentive schemes
would be grandIathered.

On the personal tax Iront, the income slabs have
been increased substantially. The Code proposes
to tax the individuals at 30 only beyond an
income oI IR 25 lakhs. Also, exemptions such
as LTA, medical reimbursement, leave
encashment, etc would no longer be available.
With a view to encourage the savings, the
annual limit has been increased to IR 3 lakhs
Irom existing limit oI IR 1 lakh. Further, the
beneIit oI housing loan interest deduction is
removed. The Code proposes to introduce the
'xempt-xempt-Taxation' (T) method oI
taxation oI savings invested aIter the
commencement oI the Code (i.e. The
investments/savings made till 1
st
April 2011 will
remain unaIIected by these provisions).

The Code is likely to signiIicantly beneIit the
salaried class employees, working on a cost-to-
company pay-package (which is the widely
accepted practice in India). However, the
government/ public sector employees could be
adversely hit by these provisions, given that
they are used to getting a number oI tax-Iree
perquisites/allowances.

The threshold exemption limit Ior wealth tax is
proposed to be increased to IR 50 crores, with
a reduced rate oI 0.25; however, the deIinition
oI assets has been widened to include even
Iinancial assets. Wealth tax on companies and
Iirms will be discontinued.

The Code proposes removal oI distinction
between long term and short term capital gains;
all capital gains would now be taxable at normal
rates. The removal oI lower tax rate beneIit Ior
long term capital gains, coupled with removal oI
Security Transaction Tax, should increase
trading activity in stock-markets.

Foreign companies deciding to invest in India,
oIten deride about the uncertainly in Indian tax
laws and the long drawn-out procedure oI tax
dispute resolution. With a view to bring
certainty and reduce litigation, the Code
proposes to introduce the much awaited concept
oI Advance Pricing Mechanism ('APA'),
whereby arm's length pricing oI international
transactions could now be upIront agreed with
the tax authorities. This is a welcome step, and
should deIinitely change the outlook oI Ioreign
investors towards India.

The Code is a sincere attempt towards
simpliIying the direct tax laws in India. The
language used in the Code is much simpler than
the existing Act and leaves very little scope Ior
varied interpretations. While, it will take some
time beIore the Code can be Iully understood
and analysed in-depth, it seems that the stated
objectives will be met.

***************************************
*************************

DIRECT TAXES CODE BILL, 2009 -
preamble of the code must be modified to
reflect correct objectives and scope.
Profile

Preamble to any enactment is important:
Preamble to any enactment is very important
part oI introduction oI the enactment itselI.
Preamble to any enactment can be considered as
providing overall purposes and limitations oI the
enactment. Many times the preamble oI
enactment has been considered as important
aspect in the overall context oI all provisions as
well as individual provisions. In case any
provision is inconsistent with the preamble, the
provision may be considered invalid.
Preamble as per draft code of 2009:
In the draIt code preamble is given as Iollows
A Bill to consolidate and amend the law relating
to direct taxes.
B it enacted by Parliament in the Sixty First
Year oI the Republic OI India as Iollows-
Xxxxx
Preamble of the Income-tax Act, 1961:
The preamble to the income-tax Act, 1961 is
also on similar lines and reads as Iollows
An Act to consolidate and amend the law
relating to income- tax and super-tax.
Comparison:
The new Code oI 2009 intends to consolidate
and amend all direct tax laws. Whereas in the
Act oI 1961 it was to consolidate law relating to
income-tax and super-tax.
Importance of preamble as considered by
courts- some examples:
A preamble to a statute is a preliminary
statement oI the reasons which have made the
passing oI the statute desirable, and its position
is immediately aIter the title oI the enactment. It
may also be used to introduce a particular
section or a chapter. The policy and purpose oI a
given measure may be deducted Irom the title oI
the Act and the preamble thereoI.- I re Kerala
ducation Bill AIR 1958 SC 956.
The preamble oI the statute is a key to the
understanding oI it and may legitimately be
consulted to solve ambiguity.- K.K.Kochuni V
State oI Madras (1960) 3 SCR 887.
Whatever its value as an aid to the construction
oI a statute, it throws light on the intention and
design oI the Legislature and indicate the scope
and purpose oI the legislation itselI.- Poppatlal
Shah V The Stte oI Madras AIR 1953 SC 274.
The terms oI preamble may be restored to in
two classes oI cases, The Iirst, where the text oI
the statute is susceptible oI diIIerent
constructions; the second , where the legislature
intended that some limitation should be put on
the statute. And the preamble is used to indicate
to what particular instances the enactment was
intended to apply.
It is permissible to look at the preamble Ior
understanding the various clauses; but Iull
import is to be given to express provisions even
though they appears to go beyond the terms oI
preamble. -Barrackpore Coal Co. Ltd V UOI
AIR 1961 SC 954.
Inconsistent provision of I.T. Act:
Thus, preamble oI the Income-tax Act 1961 can
be considered as Iixing overall limitations oI the
provisions to be contained in the enactment. In
view oI author the levy oI FBT , through the
Income-tax Act, 1961 may be considered as
beyond the preamble and purpose oI income-tax
Act, 1961. Because FBT is neither a tax on
income nor it is as a consequence oI
consolidation oI provisions relating to income-
tax and super-tax. May be that on this ground
alone provisions relating to levy oI FBT may be
held ultravirse the Act.
Similarly provisions oI S. 56 (2) (v)/ (vi) and
(vii)- ( popularly called deemed income by way
oI giIts) are also inconsistent with the preamble
oI the Act. The same may also be held in valid
provisions.
ThereIore, to avoid all such possibilities it is
desirable that the preamble should be
comprehensive and target the main purpose oI
the enactment.
Should we need to look in history for
purposes of the new enactment?
As per the above reIerred preambles, in the
income-tax Act, 1961 and the Direct Tax Code
2009 it becomes necessary to look back in the
history oI various enactments which are being
consolidated and amended. This is not desirable.
The preamble can be made comprehensive to
include all real purposes.
Suggested preamble:
"A Bill to consolidate and amend the law
relating to direct taxes and to provide Ior levy,
determination, collection, administration and
incidental matters Ior the same."
A preamble on the above lines will make it clear
that the law is in relation to direct taxes,
Readers are requested to send their feed
back.

Direct Taxes Code: How you are
affected!
Http//business.rediII.com/report/2010/Ieb/15/bu
dget-2010-perIin-how-direct-taxes-code-aIIects-
you.htm

The year 2009 was a landmark year Ior taxation
in India | Images |. During this year, the
government introduced a landmark Bill -- The
Direct Taxes Code Bill. It remains to be seen iI
the Iinance minister speaks Iurther on the code
during his Budget speech on February 26, 2010.

II and when it is implemented, it will aIIect all
oI us as it will not only alter the tax we pay, but
will also impact our investments, borrowings,
and expenses.
Here is how it will aIIect all oI us
Changes in tax slabs
The biggest impact oI the new tax system is the
signiIicant widening oI income slabs. According
to this, people with annual income not
exceeding 1.6 lakh (Rs 160,000) will not have to
pay any tax. For those with an annual income
Irom Rs 1.6 lakh to Rs 10 lakh (Rs 1 million),
you pay tax at 10; Ior incomes Irom Rs 10
lakh to Rs 25 lakh (Rs 2.5 million), the tax is
20, and it is 30 Ior incomes exceeding Rs 25
lakh.
So iI your annual income is Rs. 2 lakh (Rs
200,000), you Iall in the 10 tax slab. These
rates and slabs would be applicable Irom the
Iinancial year 2011-12.
However, with this move the government plans
to make most oI your allowances taxable. Hence
iI you are a high earner, earning a lot oI
allowances, your tax liability will go up
signiIicantly.
Effect on Capital Gains
As per the new tax code, both the short-term and
long-term capital gains are treated equally.
The tax code recommends making both the
contribution and return Irom your investments
tax-Iree, but proposes to tax the maturity
proceeds. This will aIIect your stocks and equity
mutual Iunds. This is diIIerent Irom the present
system, in which the maturity proceeds are tax-
Iree.
Impact on tax savings
With the introduction oI this code, the
government has eliminated the various tax
breaks. However the government has hiked the
tax savings limit to Rs 3 lakh (Rs 300,000) per
annum, while restricting the available
investment alternatives.
So now you can invest only in PPF (Public
Provident Fund), PF (mployees Provident
Fund), liIe insurance, superannuation Iunds, and
PS (ew Pension Scheme). Besides you can
also claim tax beneIits on your children's
education.
However, the code proposes that there will be
no more tax beneIits Ior investing in nscs
(ational Savings CertiIicates), Senior Citizens
Savings Scheme, tax-saving bank Iixed deposits
and LSS (quity-Linked Savings Schemes).
Impact on home loans
Currently, iI you have taken a home loan, the
interest payments up to Rs 1.5 lakh (Rs
150,000) and up to Rs 1 lakh (Rs 100,000)
towards principal repayment are eligible Ior tax
beneIit.
But this is set to end once the new code comes
into eIIect. So iI you have paid Rs 3 lakh as
interest and Rs 2 lakh as principal, you will not
get any tax beneIit. However, iI you have rented
out a home, you can still avail oI the tax beneIits
Ior taking the home loan.
The exemptions allowed
With the code, the government aims to tax the
maturity proceeds oI PPF and insurance. But in
the case oI insurance, deduction will be given
only Ior the sum obtained only iI the premium
payable is not more than 5 oI the sum assured
and the sum assured is obtained only when the
insurance term is over.
For PPF, the balance in the account as oI March
31, 2010 will not be taxed on withdrawal.
Here is a simple example to help figure the
effect of the new tax code:
Rahul is a salaried employee. His annual salary
is Rs 5 lakh (Rs 500,000). He has invested Rs
50,000 in mutual Iunds, Rs 20,000 in insurance
and Rs 40,000 in PPF.
Moreover he has taken a home loan oI which he
has already paid Rs 80,000 as principal and Rs 1
lakh as interest.
Let us see how his situation will change once
the new tax code comes into eIIect.
Rahul's current situation: Currently Rahul
gets tax beneIit on the amounts he has invested
in PPF, mutual Iunds, insurance as well as on
the principal repayment oI his home loan. The
limit on this amount is Rs 1 lakh.
Besides, Rahul has also paid interest on his
home loan. So the total amount tax exempted is
Rs 2 lakh (Rs 1 lakh tax exemption under
Section 80C oI the Income Tax Act and Rs 1
lakh as interest on home loan).
Hence now Rahul's taxable amount is Rs 3 lakh
-- (Rs 5 lakh oI salary minus Rs. 2 lakh oI
amount exempted). So the total tax that Rahul
will pay on the amount oI Rs 3 lakh is Rs
15,000 |Rs 3 lakh - Rs 1.5 lakh Rs. 1.5 lakh is
the taxable amount and the tax rate applicable is
10|. So he currently pays Rs 15,000 as tax.
Rahul's situation after the new code: Rahul's
total amount exempted Irom tax is Rs 1.1 lakh
(Rs 110,000) (total oI his amounts invested in
mutual Iunds, PPF and insurance) plus Rs 1 lakh
paid towards home loan interest. So his tax
exempted amount goes up to Rs 2.1 lakh (Rs
210,000).
His total taxable income now becomes Rs. 2.9
lakh (Rs 290,000). Ultimately he ends up paying
Rs 13,000 |Rs 2.9 lakh minus Rs. 1.6 lakh Rs
1.3 lakh (Rs 130,000) that is taxed at 10|.
Rahul will now save Rs 2,000 in tax. He can do
this because with the new tax code, the
government plans to hike the tax slabs.
While the original tax slab Ior which tax was
not applied was 0-Rs 1.5 lakh, the upper limit
aIter the tax code comes into eIIect goes up to
Rs 1.6 lakh.
Moreover the new code has hiked the tax
exemption limits to 3 lakh Irom present limit oI
Rs 1 lakh.

THE DIRECT TAXES CODE, 2010
A
BILL
To consolidate and amend the law relating to
direct taxes.
B it enacted by Parliament in the Sixty-Iirst
Year oI the Republic oI India as Iollows
CHAPTER I
PRELIMINARY
1. (1) This Act may be called the Direct Taxes
Code, 2010.
(2) It extends to the whole oI India.
(3) Save as otherwise provided in this Code, it
shall come into Iorce on the 1st day oI
April, 2012.
PART A
INCOME-TAX
CHAPTER II
BASIS OF CHARGE
2. (1) In accordance with the provisions oI this
Code, every person shall be liable to
Liability to
pay, and
charge oI,
income-tax.
Short title,
extent and
commencement.
Pay income-tax in respect oI his total income oI
the Iinancial year.
Short title,extent andcommencement.
Liability topay, andcharge oI,income-tax.
TO B ITRODUCD I LOK SABHA
Bill o. 110 oI 2010
(2) Subject to the provisions oI this Code,
income-tax, including additional income-tax,
Shall be charged in respect oI the total income
oI a Iinancial year oI every person.
(3) Where the income-tax reIerred to in sub-
section (2) is to be charged in respect oI
The income oI a period other than the Iinancial
year, the income-tax Ior such period shall be
Charged accordingly.
(4) The income-tax reIerred to in sub-section (2)
shall be charged at the rate speciIied
In the First Schedule in the manner provided
therein.
(5) In respect oI the income chargeable under
sub-section (2), income tax shall be
Deducted or collected at source or paid in
advance, in accordance with the provisions oI
this
Code.
(6) The chargeability oI income-tax on the
income oI a Iinancial year under the Ioregoing
Provisions shall be determined in accordance
with the provisions oI this Code as they stand
On the 1st day oI April oI that Iinancial year.
3. (1) Subject to the provisions oI this Code, the
total income oI any Iinancial year oI
A person, who is a resident, shall include all
income Irom whatever source derived which
Scope oI
total
income.
(a) accrues, or is deemed to accrue, to him in
India during the year;
(b) accrues to him outside India during the year;
(c) is received, or is deemed to be received, by
him, or on his behalI, in India
During the year; or
(d) is received by him, or on his behalI, outside
India during the year.
(2) Subject to the provisions oI this Code, the
total income oI any Iinancial year oI a
Person, who is a non-resident, shall include all
income Irom whatever source derived which
(a) accrues, or is deemed to accrue, to him in
India during the year; or
(b) is received, or is deemed to be received, by
him, or on his behalI, in India
During the year.
(3) Any income which accrues to a resident
outside India during the year, or is
Received outside India during the year by, or on
behalI oI, such resident, shall be included in
The total income oI the resident, whether or not
such income has been charged to tax outside
India.
4. (1) An individual shall be resident in India in
any Iinancial year, iI he is in India
(a) Ior a period, or periods, amounting in all to
one hundred and eighty-two days
Or more in that year; or
(b) Ior a period, or periods, amounting in all
to
(i) sixty days or more in that year; and
(ii) three hundred and sixty-Iive days or more
within the Iour years
Residence
in
India.
Immediately preceding that year.
(2) The provisions oI clause (b) oI sub-section
(1) shall not apply in respect oI an
Individual who is
(a) a citizen oI India and who leaves India in
that year as a member oI the crew oI
An Indian ship; or
(b) a citizen oI India and who leaves India in
that year Ior the purposes oI
mployment outside India.
(3) A company shall be resident in India in any
Iinancial year, iI
(a) it is an Indian company; or
(b) its place oI eIIective management, at any
time in the year, is in India.
(4) very other person shall be resident in India
in any Iinancial year, iI the place oI
Control and management oI its aIIairs, at any
time in the year, is situated wholly, or partly, in
India.
5. (1) The income shall be deemed to accrue in
India, iI it accrues, whether directly or
Indirectly, through or Irom
(a) any business connection in India;
(b) any property in India;
(c) any asset or source oI income in India; or
(d) the transIer oI a capital asset situated in
India.
(2) Without prejudice to the generality oI the
provisions oI sub-section (1), the
Following income shall be deemed to accrue in
India, namely
(a) income Irom employment, iI it is Ior
(i) service rendered in India;
Income
deemed to
accrue in
India.
(ii) service rendered outside India by a citizen oI
India and the income is
Receivable Irom the Government; or
(iii) the rest period, or leave period, which
precedes, or succeeds, the
Period oI service rendered in India and Iorms
part oI the service contract oI
mployment;
(b) any dividend paid by a domestic company
outside India;
(c) any insurance premium including re-
insurance premium accrued Irom or
Payable by any resident or non-resident in
respect oI insurance covering any risk in
India;
(d) interest accrued Irom or payable by any
resident or the Government;
(e) interest accrued Irom or payable by any non-
resident, iI the interest is in
Respect oI any debt incurred and used Ior the
purposes oI
(i) a business carried on by the non-resident in
India; or
(ii) earning any income Irom any source in
India;
(I) royalty accrued Irom or payable by any
resident or the Government;
(g) royalty accrued Irom or payable by a non-
resident, iI the royalty is Ior the
Purposes oI
India; or
India;
(h) Iees Ior technical services accrued Irom or
payable by any resident or the
Government;
(i) Iees Ior technical services accrued Irom or
payable by any non-resident, in
Respect oI services utilised Ior the purposes
oI
India; or
India;
(j) transportation charges accrued Irom or
payable by any resident or the
Government;
(k) transportation charges accrued Irom or
payable by any non-resident, iI the
Transportation charges are in respect oI the
carriage to, or Irom, a place in India.
(3) For the purposes oI clause (a) oI sub-section
(1), in the case oI a business oI
Which all the operations are not carried out in
India, the income oI the business deemed to
Accrue in India shall be only such part oI the
income as is reasonably attributable to the
Operations carried out in India.
(4) The income deemed to accrue in India under
sub-section (1) shall, in the case oI a
on-resident, not include the Iollowing,
namely
(a) any income accruing through, or Irom,
operations which are conIined to the
Purchase oI goods in India Ior the purposes oI
export out oI India;
(b) interest accrued Irom or payable by a
resident, in respect oI any debt incurred
And used Ior the purposes oI
(i) a business carried on by the resident outside
India; or
(ii) earning any income Irom any source outside
India;
(c) royalty accrued Irom or payable by a
resident Ior the purposes oI
India; or
India;
(d) royalty consisting oI lump sum consideration
accrued Irom or payment made
By a resident Ior the transIer oI any rights
(including the granting oI a licence) in
Respect oI computer soItware supplied by the
non-resident manuIacturer, along with a
Computer or computer-based equipment, under
any scheme approved under the Policy
On Computer SoItware xport, SoItware
Development and Training, 1986 issued by
The Government oI India;
(e) Iees Ior technical services accrued Irom or
payable by a resident, in respect oI
Services utilised Ior the purposes oI
India; or
India;
(I) transportation charges Ior the carriage by
aircraIt or ship accrued Irom or
Payable by any resident, iI the transportation
charges are in respect oI the carriage
From a place outside India to another place
outside India, except where the airport or
Port oI origin oI departure oI such carriage is in
India;
(g) income Irom transIer, outside India, oI any
share or interest in a Ioreign
Company unless at any time in twelve months
preceeding the transIer, the Iair market
Value oI the assets in India, owned, directly or
indirectly, by the company, represent at
Least IiIty per cent. OI the Iair market value oI
all assets owned by the company;
(h) interest accrued Irom or payable by a non-
resident as reIerred to in subclause
(ii) oI clause (e) oI sub-section (2), iI such
interest has not been claimed by the
on-resident as a deduction Irom his tax bases
chargeable in India.
(5) The provisions oI clauses (c) to (k) oI sub-
section (2) shall be applicable, whether
Or not,
(a) the payment is made in India;
(b) the services are rendered in India;
(c) the non-resident has a residence or place oI
business or any business
Connection in India; or
(d) the income has accrued in India.
(6) Where the income oI a non-resident, in
respect oI transIer, outside India, oI any
Share or interest in a Ioreign company, is
deemed to accure in India under clause (d) oI
subsection
(1), it shall be computed in accordance with the
Iollowing Iormula

Where A Income Irom the transIer
computed in accordance with
Provisions oI this Code as iI the transIer was
eIIected in
India;
B Iair market value oI the assets in India,
owned, directly
Or indirectly, by the company;
C Iair market value oI all assets owned by the
company.
6. The Iollowing income shall be deemed to be
received in the Iinancial year, namely
(a) any contribution made by an employer, in
the Iinancial year, to the account oI
Income
deemed to be
received in the
Iinancial year.
An employee under a pension Iund;
(b) any contribution made by an employer, in
the Iinancial year, to the account oI
An employee in any other Iund;
(c) the annual accretion, in the Iinancial year, to
the balance at the credit oI any
mployee in a Iund reIerred to in clause (b) to
the extent it exceeds the limit as may be
Prescribed.
7. For the purposes oI inclusion in the total
income oI an assessee
(a) any dividend declared, distributed or paid by
a company within the meaning
OI item (a) or item (b) or item (c) or item (d) or
item (e) oI clause (81) oI section 314 shall
Be deemed to be the income oI the Iinancial
year in which it is so declared, distributed
Dividend
income.
Or paid, as the case may be;
(b) any interim dividend shall be deemed to be
the income oI the Iinancial year in
Which the amount oI such dividend is
unconditionally made available by the company
To the member who is entitled to it.
8. (1) The total income oI any person, being a
transIeror, shall include the Iollowing,
amely
(a) any income accruing to any other person, by
virtue oI a transIer, whether
Revocable or not, without transIer oI the asset
Irom which the income accrues; or
(b) any income accruing to any other person, by
virtue oI a revocable transIer oI
An asset.
Total income
to include
income oI any
other person.
(2) The provisions oI clause (b) oI sub-section
(1) shall not apply in a case where
(a) any income accrues Irom an asset transIerred
to any trust, iI the transIer is
ot revocable during the liIe time oI the
beneIiciary oI the trust; or
(b) any income accrues Irom an asset transIerred
to any other person, not being
A trust, iI the transIer is not revocable during
the liIetime oI such other person.
(3) In this section,
(a) a transIer shall be deemed to be revocable
iI
(i) it contains any provision Ior the re-transIer,
directly or indirectly, oI the
Whole or any part oI the income or assets to the
transIeror; or
(ii) it, in any way, gives the transIeror a right to
re-assume power, directly
Or indirectly, over the whole or any part oI the
income or assets;
(b) a transIer shall include any settlement, trust,
covenant, agreement or
Arrangement.
9. (1) The total income oI any individual shall
include
(a) all income which accrues, directly or
indirectly,
(i) to the spouse, by way oI salary, commission,
Iees or any other Iorm oI
Remuneration, whether in cash or in kind, Irom
a concern in which the individual
Has a substantial interest;
Income oI
individual to
include income
oI spouse, minor
child and others.
(ii) Irom assets transIerred, directly or
indirectly, to the spouse by the
Individual, otherwise than Ior adequate
consideration, or in connection with an
Agreement to live apart;
(iii) Irom assets transIerred, directly or
indirectly, to the son`s wiIe by the
Individual, otherwise than Ior adequate
consideration; or
(iv) Irom assets transIerred, directly or
indirectly, to any other person by
The individual otherwise than Ior adequate
consideration, to the extent to which
The income Irom such assets is Ior the
immediate or deIerred beneIit oI the
Spouse or son`s wiIe;
(b) all income which accrues to a minor child
(other than a minor child being a
Person with disability or person with severe
disability) oI the individual, other than
Income which accrues to the child on account oI
any
(i) manual work done by the child; or
(ii) activity involving application oI the skill,
talent or specialised knowledge
And experience oI the child;
(c) all income derived Irom any converted
property or part thereoI;
(d) all income derived Irom any converted
property which is received by the
Spouse or minor child upon partition oI the
Hindu undivided Iamily oI which the
Individual is a member.
(2) The provisions oI sub-clause (i) oI clause (a)
oI sub-section (1) shall not apply in
Relation to any income accruing to the spouse
where the spouse possesses technical or
ProIessional qualiIications and the income is
solely attributable to the application oI the
Technical or proIessional knowledge and
experience oI the spouse.
(3) The income reIerred to in sub-clause (i) oI
clause (a) oI sub-section (1) shall,
otwithstanding anything contained therein, be
included in the total income oI the spouse
Whose total income (excluding the income
reIerred to in that sub-clause) is higher.
(4) The Board may prescribe the method Ior
determining the income reIerred to in subclause
(ii) and sub-clause (iii) oI clause (a) oI sub-
section (1).
(5) The income reIerred to in clause (b) oI sub-
section (1) shall be included in the total
Income oI
(a) the parent who is the guardian oI the minor
child; or
(b) the parent whose total income (excluding the
income reIerred to in that
Clause) is higher, iI both the parents are
guardians oI the child.
(6) Where any income reIerred to in clause (b)
oI sub-section (1) is once included in
The total income oI a parent, any such income
arising in the succeeding year shall not be
Included in the total income oI the other parent,
unless the Assessing OIIicer considers it
ecessary to do so aIter giving an opportunity
oI being heard to the other parent.
(7) In this section, 'property includes any
interest in property whether movable or
Immovable, the sale proceeds oI such property,
in whichever Iorm and where the property, is
Converted into any other Iorm oI property by
any method, such other property.
10. Subject to the provisions oI this Code, the
total income oI a Iinancial year oI a
Person shall not include the income enumerated
in the Sixth Schedule.
11. The persons, entity or Iunds enumerated in
the Seventh Schedule shall not be
Liable to income-tax under this Code Ior any
Iinancial year, subject to the IulIillment oI
Conditions speciIied in the said Schedule.

Income not
included in the
total income.
Persons,
entity or Iunds
not liable to
income-tax.

CHAPTER III
COMPOSITION OF TOTAL INCOME
I. GRAL
12. (1) The total income oI a person shall be
computed in accordance with the provisions
OI this Chapter.
(2) Unless otherwise provided in this Code,
reIerence to any accrual, receipt,
xpenditure, withdrawal, asset or liability shall
be construed to be in relation to the Iinancial
Year in respect oI which, and the person in
respect oI whom, the income is computed.
13.For the purposes oI computation oI total
income oI any person Ior any Iinancial
Year, income Irom all sources shall be classiIied
as Iollows
Computation
oI total
income.
ClassiIication
oI sources oI
income.
A. Income Irom ordinary sources.
B. Income Irom special sources.
14. The income Irom any source, other than a
special source, shall be computed under
The class 'income Irom ordinary sources and
such income shall be classiIied under the
Following heads oI income, namely
A. Income Irom employment.
B. Income Irom house property.
C. Income Irom business.
D. Capital gains.
. Income Irom residuary sources.
15. (1) very income listed in column (3) oI the
Table in Part III oI the First Schedule
Shall be the income Irom a special source oI the
person speciIied in column (2) oI the said
Computation
oI income
Irom
ordinary
sources.
Computation
oI income
Irom special
sources.
Table.
(2) The income Irom any special source shall be
computed under the class 'income
From special sources in accordance with the
provisions oI the inth Schedule.
(3)otwithstanding anything in sub-section (1),
the income reIerred to therein shall
ot be considered as income Irom a special
source, iI such income is attributable to the
Permanent establishment oI a non-resident in
India.
16. (1) The income oI the husband and wiIe,
governed by the communiao dos bens,
From ordinary sources under each head oI
income (other than the head 'Income Irom
mployment) and Irom special sources shall be
apportioned equally between the spouses.
.
Apportionme
nt
oI income
between
spouses
governed by
Portuguese
Civil Code.
(2) The income so apportioned under sub-
section (1) shall be included separately in
The total income oI the spouses.
(3) The income under the head 'Income Irom
employment shall be included in the
Total income oI the spouse who has actually
earned it.
(4) In this section, communiao dos bens reIers
to the system oI community oI property
Under the Portuguese Civil Code oI 1860 as in
Iorce in the State oI Goa and in the Union
Territories oI Dadra and agar Haveli and
Daman and Diu.
17. Subject to the provisions oI this Code,
(i) any income which is included in the total
income oI a person Ior any Iinancial
Avoidance oI
double
taxation.
Year shall not be so included again in the total
income oI such person Ior the same or
Any other Iinancial year.
(ii) any income which is includible in the total
income oI any person shall not be
Included in the total income oI any other
person,except where Ior the purposes oI
protecting the interests oI revenue, it is
necessary to do so.
18. (1) In computing the total income oI a
person Ior any Iinancial year, the Iollowing
Shall not be allowed as a deduction, namely
(a) any expenditure, attributable to income
which is not included in the total
Income under the Sixth Schedule, determined in
accordance with such method as may
Be prescribed;
xpenditure
not to be
allowed as
deduction.
(b) any expenditure attributable to any income
Irom special sources;
(c) any expenditure which has been allowed as a
deduction in any other Iinancial
Year;
(d) any expenditure incurred Ior an activity
which is an oIIence or which is not
Permissible by law;
(e) any provision made Ior any liability, iI it
remains unascertained by the end oI
The Iinancial year; and
(I) any unexplained expenditure reIerred to in
clause (q) oI sub-section (2) oI
Section 58.
(2) Any amount allowed as a deduction under
any provision oI this Code shall not be
Allowed as a deduction under any other
provision oI this Code.
(3) The provisions oI this section shall apply
notwithstanding anything in any other
Provisions oI this Chapter.
19. (1) Any amount on which tax is deductible
at source under Chapter XIII during the
Financial year shall not be allowed as a
deduction in computing the total income iI,
(a) the tax has not been deducted during the
Iinancial year; or
(b) the tax, aIter such deduction, has not been
paid on or beIore the due date
SpeciIied in sub-section (1) oI section 144.
(2) A deduction shall be allowed in respect oI
the amount reIerred to in sub-section (1)
In any subsequent Iinancial year, iI
Amount
not
deductib
le where
tax is
not
deducte
d at
source.
(a) tax has been deducted during the Iinancial
year, but paid in such subsequent
Year aIter the due date speciIied in sub-section
(1) oI section 144; or
(b) tax has been deducted and paid in such
subsequent Iinancial year.
II. HADS OF ICOM
A. - Income Irom employment
20. The income oI a person Irom employment
shall be computed under the head
'Income Irom employment.
21. The income computed under the head
'Income Irom employment shall be the
Gross salary as reduced by the aggregate
amount oI the deductions reIerred to in section
23.

Income Irom
employment
.
Computati
on oI
income
Irom
employme
nt.
22. The gross salary shall be the amount oI
salary due, paid, or allowed, whichever is
arlier, to a person in the Iinancial year by or on
behalI oI his employer or Iormer employer.
23. (1) The deductions Irom the gross salary Ior
computation oI income Irom
mployment, to the extent included in the gross
salary, shall be the Iollowing, namely
(a) any sum paid by the employee on account oI
a tax on employment within the
Meaning oI clause (2) oI article 276 oI the
Constitution;
(b) any allowance or beneIit granted by an
employer Ior journey by an employee
Between his residence and oIIice or any other
place oI work, to such extent as may be
Prescribed;
Scope oI gross
salary.
Deductions
Irom gross
salary
(c) any allowance or beneIit granted by an
employer to an employee
(i) to meet expenses wholly, necessarily and
exclusively in the perIormance
OI the duties oI an oIIice or employment oI
proIit, as may be prescribed, to the
xtent such expenses are actually incurred Ior
that purpose;
(ii) to meet personal expenses, considering the
place oI posting or nature
OI duties or place oI residence, subject to such
conditions and limits as may be
Prescribed;
(d) any amount oI contribution made by an
employer, in the Iinancial year, to the
Account oI an employee under an approved
pension Iund notiIied by the Central
Government, to the extent it does not exceed ten
per cent. OI the salary oI the employee;
(e) any amount oI contribution made by an
employer, in the Iinancial year, to the
Account oI an employee in an approved
superannuation Iund;
(I) any amount oI contribution by an employer,
in the Iinancial year, to an
Account oI an employee in an approved
provident Iund, to the extent it does not
xceed twelve per cent. OI the salary oI the
employee;
(g) any amount oI interest credited, in the
Iinancial year, on the balance to the
Credit oI an employee in an approved Iund to
the extent it does not exceed the amount
OI interest payable at the rate notiIied by the
Central Government;
(h) any allowance provided by an employer to
meet the expenditure actually
Incurred on payment oI rent in respect oI
residential accommodation occupied by the
mployee, to such extent as may be prescribed.
(2) For the purposes oI clauses (d), (I) and (h) oI
sub-section (1), salary means basic
Salary and includes dearness allowance, iI the
terms oI employment so provide.
B.Income Irom house property
24. (1) The income Irom letting oI any house
property owned by any person shall be
Computed under the head 'Income Irom house
property.
(2) The income Irom any house property shall
be computed under this head
Income Irom
house
property.
otwithstanding that the letting, iI any, oI the
property is in the nature oI trade, commerce or
Business.
(3) The income Irom any house property owned
by two or more persons having
DeIinite and ascertainable shares shall be
computed separately Ior each such person in
Respect oI his share.
(4) In a case where the shares oI the owners oI
the house property reIerred to in subsection
(3) are not deIinite and ascertainable, such
persons shall be assessed as an association
OI persons in respect oI such property.
(5) The provisions oI this section shall not
apply,-
(a) to the house property, or any portion oI the
house property, which
(i) is used by the person as a hospital, hotel,
convention centre or cold
Storage; and
(ii) Iorms part oI Special conomic one,
The income Irom which is computed under the
head 'income Irom business;
(b) to a house property which is not ready Ior
use during the Iinancial year.
25. The income Irom house property shall be the
gross rent as reduced by the aggregate
Amount oI the deductions reIerred to in section
27.
26. The gross rent in respect oI a house property
or any part oI the property shall be
The amount oI rent received or receivable,
directly or indirectly, Ior the Iinancial year or
part
Computation oI
income Irom
house property
Scope oI gross
rent
ThereoI, Ior which such property is let out.
27. (1) The deductions Ior the purposes oI
computation oI income Irom house property
Shall be the Iollowing, namely
(a) the amount oI taxes levied by a local
authority in respect oI such property, to
The extent the amount is actually paid by him
during the Iinancial year;
(b) a sum equal to twenty per cent. OI the gross
rent determined under section 26,
Towards repair and maintenance oI such
property;
(c) the amount oI any interest,
(i) on loan taken Ior the purposes oI acquisition,
construction, repair or
Renovation oI the property; or
Deductions Irom
gross rent
(ii) on loan taken Ior the purpose oI repayment
oI the loan reIerred to in
Sub-clause (i);
(2)The interest reIerred to in clause (c) oI sub-
section (1) which pertains to the period
Prior to the Iinancial year in which the house
property has been acquired or constructed shall
Be allowed as deduction in Iive equal
instalments beginning Irom such Iinancial year.
(3)The interest deductible under sub-section (2)
shall be reduced by any part thereoI
Which has been allowed as deduction under any
other provision oI this Code.
28. The amount oI rent received in advance
shall be included in the gross rent oI the
Financial year to which the rent relates.
Provision Ior
advance rent
received.
29. (1) The amount oI rent received in arrears
shall be deemed to be the income Irom
House property oI the Iinancial year in which
such rent is received.
(2) The arrears oI rent reIerred to in sub-section
(1) shall be included in the total
Income oI the person under the head income
Irom house property, whether the person is the
Owner oI the property in that year or not.
(3) A sum equal to twenty per cent. OI the
arrears oI rent reIerred to in sub-section (1)
Shall be allowed as deduction towards repair
and maintenance oI the property.
C.Income Irom business
30. (1) The income Irom any business carried on
by the assessee at any time during a
Provision Ior
arrears oI rent
received.
Income Irom
business.
Financial year shall be computed under the head
'Income Irom business.
(2) The income oI distinct and separate business
reIerred to in section 31 shall be
Computed separately Ior the purposes oI sub-
section (1).
(3) Any income Irom a business aIter its
discontinuance shall be deemed to be the
Income oI the recipient in the year oI receipt
and shall, accordingly, be computed under the
Head 'Income Irom business.
31. (1) A business shall be distinct and separate
Irom another business iI there is no
Interlacing or inter-dependence between the
businesses.
(2) A business shall be deemed to be distinct
and separate Irom another business, iI
Business when
teated distinct
and separate.
(a) the unit oI the business is processing,
producing, manuIacturing or trading
The same goods as in the other business and
such unit is located physically apart Irom
The other unit;
(b) the unit oI the business is processing,
producing or manuIacturing the same
Goods as in the other business and utilises raw
material or manuIacturing process,
Which is diIIerent Irom the raw material or the
manuIacturing process oI the other unit;
(c) separate books oI account are maintained or
capable oI being maintained, Ior
The business; or
(d) it is a business in respect oI which proIits are
determined under sub-section
(2) oI section 32.
(3) A speculative business shall be deemed to be
distinct and separate Irom any other
Business including other speculative business.
32. (1) The income computed under the head
'Income Irom business shall be the
ProIits Irom the business.
(2) The proIits Irom the business oI the nature
speciIied in column (2) oI the Table
Given below shall be computed in accordance
with the provisions contained in the Schedule
SpeciIied in the corresponding entry in column
(3) oI the said Table.
TABL
Sl. ature oI Business Schedule
o.
(1) (2) (3)
1. Business oI Insurance ight Schedule
Computation
oI income
Irom business
2. Business oI operating a qualiIying ship Tenth
Schedule
3. Business oI mineral oil or natural gas
leventh Schedule
4. Business oI developing oI a Special
conomic one TwelIth Schedule
Business speciIied in Paragraph 1 oI the TwelIth
Schedule
5. Business speciIied in Paragraph 1 oI the
Thirteenth Schedule Thirteenth Schedule
6 Business listed in column (2) oI the Table in
the Fourteenth Schedule
Fourteenth Schedule where income is
determined on
Presumptive basis
(3) The proIits Irom any business not reIerred to
in sub-section (2) shall be the gross
arnings Irom the business as reduced by the
amount oI business expenditure incurred by
The assessee.
33. (1) The gross earnings reIerred to in sub-
section (3) oI section 32 shall be the
Aggregate oI the Iollowing, namely
(i) the amount oI any accrual or receipt Irom, or
in connection with, the business;
(ii) the value oI any beneIit or perquisite,
whether convertible into money or not,
Accrued or received Irom, or in connection
with, the business;
(iii) the value oI the inventory oI the business,
as on the close oI the Iinancial
Year; and
(iv) any amount received Irom a business aIter
its discontinuance.
Gross earnings.
(2) The accruals or receipts reIerred to in sub-
section (1) shall, without prejudice to the
Generality oI the provisions oI that sub-section,
include the Iollowing, namely
(i) the amount oI any compensation or other
payment, accrued or received, Ior
(a) termination or modiIication oI terms and
conditions relating to
Management oI business, any business
agreement or any agency; or
(b) vesting oI the management oI any property
or business in another
Person or the Government;
(ii) any consideration, accrued or received under
a non-capital agreement;
(iii) any amount or value oI any beneIit, whether
convertible into money or not,
Accrued to, or received by a person, being a
trade, proIessional or similar association,
In respect oI speciIic services perIormed Ior its
members;
(iv) any consideration on sale oI a licence, not
being business capital assets,
Obtained in connection with the business;
(v) any consideration on transIer oI a right or
beneIit (by whatever name called)
Accrued or received under any scheme Iramed
by the Government, local authority or a
Corporation established under any law Ior the
time being in Iorce;
(vi) the amount oI cash assistance, subsidy or
grant (by whatever name called),
Received Irom any person or the Government
Ior, or in connection with, the business
Other than to meet any portion oI the cost oI any
business capital asset;
(vii) the amount oI any remission, drawback or
reIund oI any tax, duty or cess
(not being a tax under this Code), received or
receivable;
(viii) the amount oI remuneration (including
salary, bonus and commission) or
Any interest accrued to, or received by, a
participant oI a unincorporated body Irom
Such body;
(ix) any sum received under a keyman insurance
policy including the sum
Allocated by way oI bonus on such policy;
(x) the amount oI proIit on transIer,
demolitation, destroys or discardment oI any
Business capital asset (other than a business
capital asset used Ior scientiIic research
And development) computed in accordance with
the provisions oI section 42;
(xi) any consideration accrued or received on
transIer oI carbon credits;
(xii) the amount oI any beneIit accrued to, or
received by, the person, or as the
Case may be, the successor in business, iI
(a) it is by way oI remission or cessation oI any
trading liability or statutory
Liability or it is in respect oI any loss or
expenditure, including a unilateral act by
Way oI writing oII such liability in his accounts;
and
(b) the trading liability or statutory liability or
loss or expenditure has been
Allowed as deduction in any Iinancial year;.
(xiii) the amount oI remission or cessation oI
any liability by way oI loan,
Deposit, advance or credit;
(xiv) the amount recovered Irom a trade debtor
in respect oI a bad debt or part oI
Debt which has been allowed as deduction in
any Iinancial year under clause (c) or
Clause (d) or clause (e) oI sub-section (3) oI
section 35;
(xv) the amount withdrawn Irom any special
reserve created and maintained
Under any provision oI this Code or the Income-
tax Act, 1961, as its stood beIore the
Commencement oI this Code Ior which
deduction has been allowed, iI the amount is
ot utilised Ior the purpose and within the
period speciIied therein;
(xvi) the amount accrued to, or received by, the
person Irom his employees as
Their contribution to any Iund Ior their welIare;
(xvii) the amount accrued or received on sale oI
any business capital asset used
For scientiIic research and development;
(xviii) any consideration accrued or received in
respect oI transIer oI any capital
Asset selI-generated in the course oI the
business;
(xix) any amount accrued or received on
account oI the cessation, termination or
ForIeiture in respect oI agreement entered in the
course oI the business;
(xx) any amount accrued or received, whether as
an advance, security deposit or
Otherwise, Irom the long term leasing, or
transIer oI
(a) whole or part oI any business asset; or
(b) any interest in a business asset;
(xxi) any amount received as reimbursement oI
any expenditure incurred;
(xxii) any interest accrued to, or received by, a
person being a Iinancial institution.
(xxiii) any payment or aggregate oI payments
made to a person in a day, in
Respect oI an expenditure incurred during the
Iinancial year or in respect oI a liability
Incurred and allowed as a deduction in any
preceding Iinancial year,
(a) which has been made otherwise than by an
account payee cheque
Drawn on a bank or by an account payee bank
draIt;
(b) which exceeds
(i) a xum oI thirty Iire thousand rupees iI the
payment is made to
Transporter Ior carriage oI goods by road; or
(ii) a sum oI twenty thousand rupees in any
other case; and
(c) which has not been made in such cases and
in such circumstances as
May be prescribed.
(xxiv) any amount standing to the credit oI the
Fund reIerred to in section 82,
II
(a) income-tax has not been paid on such
amount in any Iinancial year
Preceding the relevant Iinancial year; and
(b) the amount is shared during the relevant
Iinancial year, either wholly or
In part, with a recognised stock exchange or
recognised commodity exchange.
(3) The gross earnings Irom business shall not
include the Iollowing, namely
(a) any dividend;
(b) any interest other than interest accrued to, or
received by, a person being a
Financial institution;
(c) any income Irom letting oI house property
which is included under the head
Income Irom hosues propery;
(d) any income Irom the transIer oI an
investment assets.
34. (1) The amount oI business expenditure
reIerred to in sub-section (3) oI section
32 shall be the aggregate oI the Iollowing
amounts, namely
(a) the operating expenditure reIerred to in
section 35, incurred by the person Ior
The purposes oI the business carried on during
the Iinancial year;
(b) Iinance charges reIerred to in section 36,
incurred by the person Ior the
Purposes oI the business carried on during the
Iinancial year;
(c) capital allowances reIerred to in section 37,
in respect oI the business carried
On by the person during the Iinancial year.
Determination
oI business
expenditure.
(2) The provisions Ior deduction oI capital
allowances reIerred to in sub-section (1)
Shall apply, whether or not the person has
claimed the deduction in computing the total
Income.
(3) The Assessing OIIicer may restrict the
amount oI deduction under this section to
Such amount as he considers appropriate having
regard to the use oI a business asset iI such
Asset is not exclusively used Ior the purposes oI
the business.
35. (1) The amount oI operating expenditure
reIerred to in clause (a) oI sub-section (1)
OI section 34 shall be the aggregate oI
(a) the amount oI expenditure speciIied in sub-
section (2), iI
Determination
oI operating
expenditure.
(i) the expenditure is laid out or expended,
wholly and exclusively, Ior the
Purposes oI the business; and
(ii) it IulIills other conditions, iI any, speciIied
therein; and
(b) the amount oI deductions speciIied in sub-
section (3) subject to the IulIillment
OI the conditions, iI any, speciIied therein.
(2) The amount oI expenditure reIerred to in
clause (a) oI sub-section (1) shall be the
Amount oI expenditure on, or on account oI,
(i) purchase oI raw material, stores, spares and
consumables, or stock-in-trade;
(ii) rent paid Ior any premises iI it is occupied
and used by the person;
(iii) current repairs to buildings iI it is occupied
and used by the person;
(iv) land revenue, local rates or municipal taxes
in respect oI premises occupied
And used by the person is actually paid;
(v) current repair oI machinery, plant or
Iurniture used by the person;
(vi) current maintenance or repairs oI computer
soItware or hardware;
(vii) salary or wages oI employees;
(viii) remuneration to any working participant
which is in accordance with the
Agreement oI the unincorporated body and
relates to the period Ialling aIter the date oI
Such agreement limited to the extent as may be
preseribed;
(ix) any premium paid to eIIect, or to keep in
Iorce, an insurance in respect oI,
(a) any premise occupied and used by the
person;
(b) any machinery, plant or Iurniture used by the
person;
(c) stocks or stores belonging to the person;
(d) the health oI any employee oI the person;
and
(e) any other asset owned and used by the
person;
(x) any premium paid by the person, being a
Iederal milk co-operative society, to
IIect, or to keep in Iorce, an insurance on the
liIe oI the cattle owned by a member oI
A co-operative society, being a primary society
engaged in supplying milk, raised by its
Members to such Iederal milk co-operative
society.
(xi) welIare oI workmen and staII;
(xii) power and Iuel;
(xiii) Ireight, clearing and Iorwarding charge;
(xiv) selling expense in the nature oI
commission, brokerage, discount, or warranty
Charge;
(xv) sales promotion including advertisement
and publicity;
(xvi) training oI employees;
(xvii) conIerence;
(xviii) use oI hotel or boarding and lodging
Iacilities;
(xix) conveyance, tour or travel;
(xx) running or maintenance oI motor car or
aircraIt;
(xxi) postage and telecommunications;
(xxii) audit and such other proIessional Iees;
(xxiii) legal services;
(xxiv) entertainment and provision oI
hospitality;
(xxv) maintenance oI guest-house;
(xxvi) subscription, including entrance Iee, to a
club or a trade association or the
Use oI their Iacilities;
(xxvii) scientiIic research and development
related to the business;
(xxviii) salary to an employee engaged in, or the
purchase oI material used in,
ScientiIic research and development, within a
period oI three years immediately
Preceding the commencement oI the business;
(xxix) contribution by the person, being an
employer, to an approved Iund
Subject to such limits and conditions, as may be
prescribed and to the extent the
Amount is actually paid;
(xxx) contribution to any Iund, reIerred to in
clause (xvi) oI sub-section (2) oI
Section 33, to the extent,
(a) the amount has been received Irom his
employees as their contribution
To the Iund; and
(b) it is actually paid;
(xxxi) any head oIIice expenditure by a non-
resident, as is attributable to his
Business in India, not exceeding an amount
equal to one-halI per cent. OI the total
Sales, turnover or gross receipts oI business in
India;
(xxxii) cost oI acquisition oI the asset as in the
case oI the predecessor and cost
OI any improvement made thereto and
expenditure incurred wholly and exclusively in
Connection with the transIer oI the asset, by the
predecessor, iI
(a) the person is the successor in the business
reorganisation;
(b) the asset becomes the property oI the person
under a scheme oI
Business reorganisation; and
(c) the asset is sold by the person as a business
trading asset;
(xxxiii) cost oI acquisition oI the asset as in the
case oI the transIeror or the
Donor, and cost oI any improvement made
thereto and expenditure incurred wholly
And exclusively in connection with the transIer
oI the asset (including the payment oI
GiIt tax, iI any), by the transIeror or the donor,
iI
(a) the person is the transIeree or the donee;
(b) the asset becomes the property oI the person
on the total or partial
Partition oI a Hindu undivided Iamily or under a
giIt or will or an irrevocable
Trust; and
(c) the asset is sold by the person as a business
trading asset;
(xxxiv) protecting or saIeguarding the goodwill
oI person, which has necessarily
To be preserved Ior the purpose oI his business;
(xxxv) tax (not being a tax under this Code),
duty, cess, royalty or Iee, by whatever
ame called, under any law Ior the time being
in Iorce, iI the amount is actually paid;
(xxxvi) bonus or commission to employees Ior
services rendered iI
(a) the amount would not have been payable to
employees as proIits or
Dividends had it not been paid as bonus or
commission; and
(b) the amount is actually paid;
(xxxvii) encashment oI leave to the credit oI
employees, to the extent the amount
Is actually paid;
(xxxviii) gratuity to employees on their
retirement or on termination oI their
mployment, to the extent the amount is
actually paid;
(xxxix) the purposes oI a body corporate
constituted or established under a
Central, State or Provincial Act, iI
(a) such purposes are authorised by the said Act;
(b) such body corporate is notiIied by the
Central Government Ior the
Purposes oI this clause;
(xl) the amount paid by a public Iinancial
institution by way oI contribution to
A credit guarantee Iund trust Ior small industries
which is notiIied by the Central
Government Ior the purposes oI this clause;
(xli) the actual cost oI the licence reIerred to in
clause (iv) oI sub-section (2) oI
Section 33, in the year in which the
consideration on account oI sale Iorms part oI
Gross earnings;
(xlii) the actual cost oI the right or beneIit
reIerred to in clause (v) oI sub-section
(2) oI section 33, in the year in which the
consideration transIer Iorms part oI gross
arnings;
(xliii) the repayment oI any advance or security
deposit in respect oI the long term
Leasing reIerred to in clause (xx) oI sub-section
(2) oI section 33, in the year in
Which such repayment is made;
(xliv) any other operating expenditure not
covered under clause (i) to clause
(xliii).
(3) The amount oI deductions reIerred to in
clause (b) oI sub-section (1) shall be the
Following, namely
(a) the value oI inventory oI the business, as at
the beginning oI the Iinancial
Year;
(b) loss oI inventory, or money, on account oI
theIt, robbery, Iraud or
mbezzlement, occurring in the course oI the
business, iI the inventory, or the money,
Is written oII in the books oI account;
(c) any amount credited to the provision Ior bad
and doubtIul debts account,
ot exceeding one per cent oI the aggregate
average advances computed in the
Prescribed manner iI,
(i) the person is a Iinancial institution, or a non-
banking Iinance company
As may be notiIied;
(ii) the amount is charged to the proIit and loss
account Ior the Iinancial
Year in accordance with the prudential norms oI
the Reserve Bank oI India in this
Regard; and
(iii) the amount oI trade debt or part thereoI
written oII as irrecoverable in
The books oI the person is debited to the
provision Ior bad and doubtIul debts
Account;

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