DIRECT TAX CODE KEY RECOMMENDATIONS
In November 2019 the Government constituted a task force to draft new direct tax laws in consonance with economic needs of the country.
The task force has submitted following recommendations in respect of new Income Tax law:
1.Incentives for start-ups
The report has suggested that the tax treatment for start-ups should be separated with an emphasis on reducing litigation.
2.Change in reassessment rules
Various changes in the current provisions of section 147 and 148 has been suggested to empower the Assessing Officers to re-open the assessments. It is recommended to increase the threshold limit for re-opening of cases.
3.Abolish Dividend Distribution Tax [DDT]
Tax should be levied in the hands of shareholders instead of levying DDT on companies.
4.Reduced 25% tax rates or all corporates
The existing tax rates for a domestic company and a foreign company are 30% and 40% respectively. It is recommended to reduce the tax rates for all the corporates to 25%.
5. New slab rate for persons having income up to Rs.50 lakh
The task force has recommended to introduce a new slab for those earning up to Rs. 50 lakhs so as to grant relief to individual tax payers.
6. Assessment units should conduct assessment instead of Assessing Office
The task force has proposed to replace the word ‘Assessing officer’ with ‘Assessment Units’ in the new Income-tax laws.
7.Functional units would be established based on IRS officer sectorial specialisation
The task force has recommended to establish the functional units based on sector-wise specialisation of IRS officers. The functional units will carry out transfer ricing assessment and handle industry specific tax matters.
8. Litigation management unit to manage tax litigation process
The Task force has recommended to establish a separate litigation management unit to manage the entire tax litigation process.
9. Taxpayer would be able to approach CBDT for clarification
The task force has recommended to introduce the concept of ‘public ruling’ whereby taxpayers can approach CBDT for clarification on controversial tax matters.
10.Branch profit tax on repatriation of funds by foreign companies to foreign headquarters
Foreign companies will have to pay branch profit tax in addition to normal tax on repatriating funds to foreign headquarters.
11. Penal of mediators for settlement of the tax disputes
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.
12. Transfer pricing assessment would be carried out by separate functional unit
Transfer pricing assessment will be carried out by functional unit.
13. No inheritance tax
The task force has also not recommended to levy inheritance tax.
14. Video recording of statements
This will help dept. to have evidence that no pressure or coercion was applied on person while recording the statement.
15. Restructuring of MAT provisions
Those companies whose tax on total income is less than 18.5% of book profit should pay Minimum Alternate Tax [MAT].
16. Artificial intelligence for tax compliance
It has been proposed to introduce collaborative compliance in direct tax administration which will integrate data from banks, financial institutions and GST network.
17. Abolish tax on long-term capital gain arising from transfer of listed securities
The Finance Act, 2018 has withdrawn the exemption under section 10(38) of the Income-tax Act, 1961 and has introduced a new section 112A which provides that long-term capital gains (LTCG) arising from transfer of a long-term capital asset, being an equity shares or specified units, shall be taxable at the rate of 10% if such capital gains exceed Rs. 1 lakh. The task force has recommended to remove such tax in the new Income-tax law.