Direct Tax Code panel proposes major cut in income tax, corporate tax
Income taxpayers earning up to Rs 55 lakh per annum may get major tax relief if the recommendations of the DTC panel get accepted.
The Direct Tax Code (DTC) panel has recommended a substantial cut in personal income taxes and corporate tax rate. The DTC task force was constituted by the government to overhaul the 58-year old Income Tax Act and draft New Direct Tax Law.
The eight-member task force headed by Central Board of Direct Taxes member Akhilesh Ranjan had submitted its report to Union finance minister Nirmala Sitharaman on August 19, 2019. The finance ministry tweeted announcing the same but did not share the details of the report.
Many of the recommendations of the DTC panel aim to simplify the rules and procedures thus, making it easier for taxpayers.
Direct Tax Code 2.0 recommendations
The DTC panel has recommended a significant increase in the highest income tax slab. According to sources, if the recommendations to change the tax bracket and rebates, the Income taxpayers earning up to Rs 55 lakh per annum now may get major tax relief.
The DTC panel has also recommended a major cut in the corporate tax for both domestic and foreign companies. The panel has proposed reducing the tax from earlier 30 percent for large companies and 40 percent for foreign companies to an even rate of 25 percent for both domestic and foreign companies. The United States had also last year reduced its corporate tax from 35 percent to 21 percent.
However, foreign companies may still have to pay branch profits tax on the amount repatriated to their foreign partners. The draft Direct Tax Code 2013 had also recommended the same.
The panel has also reportedly proposed that dividend distribution tax (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% in the hands of the company and it is further taxed at 10% on proceeds of over Rs 10 lakh at the shareholders’ (receiver’s) end. The DDT is levied after a firm has already paid the corporate tax, which translates into triple taxation on income from the same source.
The DTC report also comprises suggestions on faceless assessment, litigation management and expeditious disposal of appeals. The report also included suggestions on sharing of information among the GST department, Customs, CBDT and Financial Intelligence Unit (FIU).
The high rate of corporation tax has been cited to be a major barrier to private investment and growth. Though the current government brought down the corporation tax rate for 99.3% of companies to 25% over the past five years, the move was seen to be only partly effective as large companies contributing the bulk of the revenue continue to pay the high corporate tax along with cesses and surcharges.
Based on the recommendations of the DTC report, the Union government is expected to revamp the direct taxation framework.
The DTC panel was given the task of bringing the new direct tax code in line with the economic needs of the country. The Direct Tax Code 2.0 is expected to replace the 58-year old existing Income Tax Act, 1961.
The DTC task force was supposed to submit its report by May 31 but it was given a two-month extension to complete its report by the then finance minister Arun Jaitley.
The new government allowed the task force time till August 16 to submit the report. The report was finally submitted on August 19, 2019.