Govt's New Direct Tax Code May Reduce I-T Burden, Simplify Filing Process

Published : 25 Aug 2019 6:18 AM GMT
GovtImage Credit: India TV News

On Monday, the ‘Taskforce for drafting a new Direct Tax Legislation’ submitted its report to Finance Minister, Nirmala Sitharaman. The eight-member high-level government task force was constituted in November 2017 headed by Akhilesh Ranjan, a member of the central board of direct taxes to script a new direct tax code.

After two years of simmering, the report has suggested major changes to revamp the archaic six-decade-old Income Tax Act, to make the tax regime simple and taxpayer-friendly. The report is yet to be made public.

If the Centre accepts the report of the panel on Direct Tax Code (DTC) then there will be lower income tax rates for individuals, simplified slabs, no surcharges on income, no dividend tax for companies and easier filing of taxes among other things. The new DTC will cut down the bulky Income Tax Act with 700-odd sections to less than 400 sections.

Below are some of the most significant changes proposed under the new DTC

New Tax Brackets

The panel suggests 10 per cent tax rate slab for annual income between Rs 2.5 lakh and Rs 10 lakh followed by a 20 per cent slab for the Rs 10-20 lakh income bracket and a 30 per cent, or higher, slab for higher income levels. If true, this will come as a major relief those in the Rs 5-8 lakh slab, who have been stuck paying 20 per cent tax since 2010-11. This will leave taxpayers with more disposable income and will directly aid consumption within the economy.

Faceless/Tech-Based Assessment Process

The new tax code introduces a faceless assessment to minimise the possibility of corruption. The idea is to replace ‘assessment officer’ with an ‘assessment unit’ thereby conducting all communications between the taxpayer and taxmen digitally through anonymous identification codes. Technology-propelled assessment procedure will ensure anonymity as it will eliminate the possibility of the assessee and the tax official concerned to know one another. It will also pick cases through centrally and randomly allotted mechanism. This will also enable to check harassment in the hands of taxmen.

Relief For India Inc

The report recommends slashing of the corporate tax rate to an even rate of 25 per cent for both domestic and foreign companies. Currently, the tax rate is proportional to the revenue generated by a company. For a small company whose revenue is up to Rs 400 crore, the corporate tax rate is 25 per cent and the companies whose revenue is more than Rs 400 crore, the corporate tax rate is 30 per cent. Foreign firms are taxed at 40 per cent. Not just this, a 4 per cent surcharge is also levied on the total tax amount. Well, these tax slabs are one of the highest in the world and the new DTC aims to cheer companies in India by lowering these tax rates. If this is implemented, it will cover over 99.3 per cent of industries. Further, the new law aims at introducing a slew of incentives and provisions for startups. This could certainly boost corporate growth.

No Dividend Distribution Tax (DDT)

The panel has also reportedly proposed that DDT should be taxed only in the hands of the recipient and not companies, to correct the anomaly of triple taxation on the distribution of profits to shareholders as dividends. Currently, the DDT is charged at 20.6 per cent in the hands of the company and it is further taxed at 10 per cent on proceeds of over Rs 10 lakh at the shareholders’ (receiver’s) end. The panel’s suggestion to scrap DDT is revenue efficient.

Mediation

To protect the taxpayers from courtroom hassle, the draft code suggests resolving disputes through mediation. Mediation is an efficient and effective way to resolve disputes without moving courts. This move is likely to bring down tax litigation in our country.

The DTC is likely to come into force from the financial year 2020-21 and will replace the 58-year-old Income Tax Act. The report of the task force must be available for public comment at the earliest.

Also Read: To Revive India’s Economy, Finance Minister Announces Cheaper Loan, Relief For Investors

Suggest a correction

    Help Us Correct

    To err is human, to help correct is humane
    Identified a factual or typographical error in this story? Kindly use this form to alert our editors
  • *
  • *
  • *
  • Form Submitted Successfully
    Error in submitting form. Try again later
Next Story