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Painless taxation: DTC panel proposes cut in income tax, corporation tax

Painless taxation: DTC panel proposes cut in income tax, corporation tax


Mangalore Today News Network

Aug 20, 2019: A substantial cut in personal income taxes to bring relief to India’s middle classes as also a lower corporation tax are understood to be among the major recommendations of the direct tax code (DTC) panel. The panel has also likely proposed that dividend distribution tax (DDT) be taxed only in the hands of recipient and not in the hands of companies as is the case today. Moreover, persons part of the consultations over the past year indicated there would be sops for start-ups and some changes relating to the taxation rules for foreign companies. Many of the recommendations deal with simplyfying the rules and procedures, and are aimed at making it easier for taxpayers.

 

income tax.


The Akhilesh Ranjan-led panel submitted its report to finance minister Nirmala Sitharaman on Monday. However, details relating to the quantum of cuts proposed in the corporation tax could not be ascertained immediately as the government did not make the report public.

The finance ministry said in a tweet, “Union Minister of Finance and Corporate Affairs Smt. @nsitharaman received the report submitted by Shri Akhilesh Ranjan, Convenor of the Task force constituted by the Government to draft New Direct Tax Law, in New Delhi today.”

The high rate of corporation tax has been cited as a major impediment to private investment and growth. Even though the government has brought down the corporation tax rate for 99.3% of companies to 25% over the past five years, the move is seen as only partly effective as large corporations contributing the bulk of the revenues continue to pay tax at the 30% as also cesses and surcharges. The government is expected to overhaul the direct taxation framework based on the recommendations in the report.

The report and the draft law also contain suggestions on inter alia faceless assessment, litigation management, process simplification and sharing of information among the GST department, Customs, CBDT and Financial Intelligence Unit (FIU).

The Akhilesh Ranjan Panel is understood to have corrected the anomaly of triple taxation on the distribution of profits to shareholders as dividends . Currently, 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’ end. These taxes are levied after a firm has already paid corporate tax, which translates into triple taxation on income from the same source.

“To be competitive globally, we need to have an effective tax rate of 20-22%, which is not the case currently. Any proposal in the DTC report that doesn’t bring down rate to this level would only be incremental,” Amrish Shah, partner at Deloitte India, said.

The panel was tasked with bringing the new direct tax code in consonance with economic needs of the country, and will replace the 58-year old existing Income Tax Act, 1961. Its original terms of reference included drafting the code in view of direct tax systems across various countries, international best practices and economic needs of the country.

The task force was supposed to submit its report by May 31, but was given a two-month extension by the then finance minister Arun Jaitley to complete the exercise. Subsequently, the government allowed the task force to submit its report by August 16, 2019, in light of the fact that some new members had requested for more time to provide further inputs.


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