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Direct Tax Code - 10 Significant recommendation and proposed changes which may come in Income Tax

Direct Tax Code - 10 Significant recommendation and proposed changes which may come in Income Tax



Direct Tax Code - Significant recommendation and proposed changes which may come in Income Tax


In order to review the Income-tax Act, 1961 and to draft a new direct tax law in consonance with the economic needs of the country, a Task Force was constituted by the Government in November, 2017. The new direct tax code will replace the existing income tax act of 1961.


After giving extension for more than 3 times the Direct Tax Code was submitted to FM on 19th Aug 2019. The Task force headed by Akhilesh Ranjan, Member of Central Board of Direct Taxes (CBDT), has submit its Direct tax code (DTC) report to Finance Minister Nirmala Sitharaman


The members of the task force also include Girish Ahuja (chartered accountant), Rajiv Memani (chairman and regional managing partner of EY India), Mukesh Patel (Practicing Tax Advocate), Mansi Kedia (Consultant, ICRIER) and G.C. Srivastava (retired IRS and Advocate).


The actual Direct Tax Code copy will be made public at the later date once government has studied it Following are some of the expected changes which are proposed as per the source based information

1) Changes in Tax Bracket

Significant relief for the middle and upper middle class; earning up to Rs 55 lakh per annum may end up with a major tax relief if recommendations to change the tax bracket and rebates are accepted, according to the sources.

2) Separate treatment for Start up from Normal Business

The task force has mooted separate treatment for startups that should be different from that of a normal company among various business-friendly proposals. 


3) Anonymous assessment

There is an emphasis on reducing litigation and making the interface of the department with taxpayers anonymous to eliminate harassment and corruption. The task force suggested replacing the concept of assessing officer with assessment units, besides faceless scrutiny of cases picked through centrally and randomly allotted mechanism. Aimed at reducing tax litigation, the panel recommended the concept of mediation between taxpayer and CBDT

4) Lower corp tax rate 

The government is already transitioning to a 25% corporate tax regime and 99.9% of companies are now covered, leaving only those with a turnover of over Rs 450 crore out of this simpler system. The thinking is that the rate needs to be further lowered to 20%, on par with that in rival investment destinations. a rate of 25% for both domestic as well as foreign companies, which face 40% tax now; and a concept of negotiated settlement via mediation that’s popular overseas. 

5) Removal of Surcharge, DDT and Cess

For simplicity and ease of compliance, the tax rates should subsume the surcharge and cess. The panel also favoured doing away with Dividend Distribution Tax by suggesting taxing dividends in the hands of shareholders. DDT is a tax which is required to be paid by the companies distributing dividends to its shareholders. It is recommended that instead of levying DDT on companies, the tax should be levied in the hands of shareholders.

6) Fewer Sections than Income Tax Act

Proposed DTC to have far fewer sections than over 700 in the Income Tax Act. Expected 300 sections only


7) System-based cross verification of the financial transactions, reduction in litigation and expeditious disposal of appeals

The number of litigations relating to various provisions of Income-tax Act, 1961 are enormous. To handle such litigations, the Task force has recommended to establish a separate litigation management unit to manage the entire tax litigation process. The task force has recommended to form a penal of 'mediators' who would assist in negotiation between tax department and the taxpayers for the settlement of tax disputes


8) No inheritance tax

There were speculations that the Government may reintroduce the Inheritance Tax in the Union Budget 2019 to enhance tax revenue but no such proposal was actually made in the Budget. The task force has also not recommended to levy inheritance tax.


9) Video recording of statements

The task force has recommended video recording of statements made during the course of search & seizure and survey operations. This will help Income Tax Department to have evidence that no pressure or coercion was applied on person while recording the statement.


10) Artificial intelligence for tax compliance

The report has encouraged use of artificial intelligence (AI) in the tax-compliance and administration process. It has been proposed to introduce collaborative compliance in direct tax administration which will integrate data from banks, financial institutions and GST network. This will done to ensure that the scope of taxable income increases.


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