Financial experts have warned that the debt restructuring would be difficult when the new Direct Taxes Code (DTC) comes into effect from April 1, 2012 as it says that the loans waived by the lenders will be treated as income for the borrowers and will be taxed accordingly.

These loans will be taxed irrespective of the fact whether it was utilized for acquisition of capital asset or for revenue expenditure purposes. The DTC will bring the remission or cessation of any liability by way of loan, deposit, advance or credit under the scope of income.

The new code will affect the corporate debt restructuring (CDR) activities in India and some experts say that the clause included is vague and could lead to litigations. The CDR solutions may not include loan waivers but could include cases with rescheduled repayment or partial waiver.

Meanwhile, the bill also includes a lot of changes but the experts say it a lot low key than the promises made in the draft version of the bill. The draft bill called for dropping exemptions on provident funds and life insurance at the time of withdrawal and medical insurance.

The DTC Bill has three income tax slabs with a tax rate of10 per cent tax for income between Rs 2-5 lakh, 20 per cent for earnings between Rs 5-10 lakh and 30 per cent on income above Rs 10 lakh. The bill also calls for exemption level of Rs 1.6 lakh to be increased to Rs 2 lakh from April 1, 2012. The bill also includes the tax exemption for senior citizens to Rs 2.5 lakh from Rs 2.40 lakh.

The bill does not present differentiated rates for men and women unlike the present structure. The tax incentives include deduction of up to Rs 1 lakh for approved long- term savings such as provident funds, superannuation funds, gratuity and pension funds.

The code also exempts Expenditure of up to Rs 50,000 on tuition fees of children, pure life insurance premia and health insurance payments from taxation. The new code will also allow deductions from income tax for interest paid on loans for construction or acquisition of self-occupied house property. It also allows a new deduction for interest on education loan and for payment of expenses of a disabled person or disabled dependent.

The corporate will also have more money n their hands as the new code will fix the corporate tax at 30 per cent and will not include surcharge and cess. The bill aims to increase minimum alternate tax (MAT) from 18 per cent to 20 per cent of book profit and collect dividend distribution tax at 15 per cent.