1st July 2017 was historic day for indirect tax by implementing Goods and Services Tax (GST). After said tax reform the Government has now proposed to revamp DTC. The task force on DTC has six-member headed by Arbind Modi, member of the apex policy making body Central Board of Direct Taxes (CBDT). This task force is in the process of drafting a direct tax legislation keeping in mind, tax system prevalent in various countries, international best practices, economic needs of the country etc. The DTC is an attempt by the Government of India to simplify the direct tax laws in India. Following are certain key aspect of proposed DTC.
Direct taxes to be replaced
DTC will be aimed revise and simplify the structure of direct tax laws in India into a single legislation. The DTC, when implemented will replace the Income-tax Act, 1961 (ITA), and other direct tax legislations like the Wealth Tax Act, 1957, Dividend Distribution Tax, Fringe Benefit Tax etc.
Simplification of Law.
The main object of proposed DTC is to simplify the present ITA. Existing Income Tax has thousands of amendments, numerous case laws, writ petitions etc over the year from the date of implementation 1961. Given this, it is proposed to develop new DTC keeping in mind legal background of ITA, international best practices, the economic needs of our country and the taxation systems prevalent in various countries.
Like GST, another key object of DTC will be to bring transparency in the system and law. Further, Prime Minister Narendra Modi had stated in September 2017 that, ‘our 50-year-old income tax law needs to be re-drafted and a new Direct Tax Code (DTC) needs to be introduced in ‘consonance with economic needs of the country’. As the government has overhauled the existing indirect tax system last year by implementing Goods and Services Tax (GST), tax reforms would remain incomplete without revamping country’s direct tax system.
Hence, new DTC could lead to bring more assessees in to the tax net to make system more transparent.
Aims to boost the competitiveness in the Global Market.
DTC aims to reduces tax rates for corporates and introduces newer tax concepts in international transactions, changes the basis of computing the taxability of business income, provides expenditure-based incentives and discontinues profit-based incentives. Hence new DTC aims to make businesses more competitive by lowering the corporate tax rate.
Additionally, the new DTC will seek to give further relief to personal income tax payers in lower slabs. DTC will try to make personal income tax rates more ‘progressive’ by giving relief to people in the 5% and 20% slabs.
Direct tax code also proposed to phase out the remaining tax exemptions that lead to litigation. It will also redefine key concepts such as income and scope of taxation in such way to reduce litigation. Interestingly under DTC, income from all sources, including capital gains from stocks, maturity proceeds of insurance policies and even the PPF, was proposed to be taxed. There was also no distinction between short-term and long-term capital gains. Hence, minimising the exemption and reducing the tax it is proposed to reduce litigation.
Looking in to the aforesaid key aspect of proposed DTC, industry is eager to welcome another revamp in Tax. As per the various news report once the draft direct tax code is submitted by the panel to the government, it will be examined by the Centre’s top leadership, and then placed in public domain for feedback. Only after an extensive process of feedback and consultation with stakeholders is undertaken, will the draft law be taken to Parliament for approval. Hence, it unlikely to introduce new DT code before 2019.