The new Direct Tax Code overhauling the Income Tax Act, 1961 has recommended relief for tax payers as it is set to bring about changes in the tax slabs that will benefit the middle class and upper middle class population. It shall also include across-the-board 25% tax rate for both local and foreign companies.The panel which the prepared the draft code was led by Central Board of Direct...
The new Direct Tax Code overhauling the Income Tax Act, 1961 has recommended relief for tax payers as it is set to bring about changes in the tax slabs that will benefit the middle class and upper middle class population. It shall also include across-the-board 25% tax rate for both local and foreign companies.
The panel which the prepared the draft code was led by Central Board of Direct Taxes (CBDT) member Akhilesh Ranjan.
The draft code proposes incentives to startups and a new concept of settling disputes through mediation between the taxpayer and a collegium of officers.
The government will release the report of the panel in the public domain for consultations after examining the recommendations.
Domestic as well as foreign companies present in India without a subsidiary are taxed at 40%. Currently, domestic companies with sales of as much as Rs.400 crore pay 25% lesser rate and bigger companies pay 30%, excluding the surcharge and cess on the income-tax outgo. On implementation, the tax rate reduction could prove to be a big fiscal stimulus for the corporate sector.
The new direct tax code has proposed a “branch profit tax” for foreign entities on the earnings that they repatriate to their overseas parent. The proposals in the draft code are aimed at bringing more certainty to taxation of personal and corporate income and capital gains. It might also bring the gist of numerous judicial pronouncements made since 1961 in one place for easy reference. It could improve ease of doing business and reduce the compliance burden as well as tax disputes.
The report of the panel comes amidst the ongoing economic downturn in the country.
The task force also recommended that assessment proceedings be made anonymous, and an option be allowed to the public to seek clarifications on tax matters from CBDT. India has been following the philosophy of phasing out tax incentives and of simultaneously reducing the tax rate so that businesses get the benefit of low tax incidence upfront.
The CBDT provides inputs for policy and planning of direct taxes in India, and is also responsible for administration of direct tax laws through the IT Department.