The Direct Taxes Code (DTC) is an attempt by the Government of India (GOI) to simplify the direct tax laws in India. DTC will revise, consolidate and simplify the structure of direct tax laws in India into a single legislation. The DTC, when implemented will replace the Income-tax Act, 1961 (ITA), and other direct tax legislations like the Wealth Tax Act, 1957.
The first draft bill of DTC was released by GOI for public comments along with a discussion paper on 12 August 2009 (DTC 2009) and based on the feedback from various stakeholders, a Revised Discussion Paper (RDP) was released in 2010. DTC 2010 was introduced in the Indian Parliament in August 2010 and a Standing Committee on Finance (SCF) was specifically formed for the purpose which, after having a broad-based consultation with various stakeholders, submitted its report to the Indian Parliament on 9 March 2012.
Recent action: As a follow-up on this initiative and as stated by the Finance Minister (FM) in his Interim Budget Speech in February 2014, after taking into account the recommendations of the SCF, a “revised” version of DTC (DTC 2013) has been released on 31 March 2014.
The DTC 2013 proposes to introduce:
- General Anti Avoidance Rules (GAAR),
- Taxation of Controlled Foreign Companies (CFC),
- Place of Effective Management (POEM) rule as a test to determine residency and tax indirect transfer of Indian assets.
- Also contains expanded source rules for taxation of royalty, fees for technical services (FTS) and interest.
Further certain novel provisions are also included such as additional tax levy on certain persons having high net worth such as dividend tax levy on dividend income earned by resident shareholders in excess of INR10 million. It also proposes a tax rate of 35% for individuals/HUFs where the total income exceeds INR100 million.
The DTC 2013 is presently a draft version which can be implemented only after it is presented before the Indian Parliament where. The fate of the DTC 2013 continues to be is uncertain. Nevertheless, DTC 2013 provides an opportunity to assess the impact of the proposals on current structures and business models.