Economy

Task force on direct tax code submits report to FM Nirmala Sitharaman

Our Bureau, New Delhi | Updated on August 19, 2019 Published on August 19, 2019

Union Finance Minister Nirmala Sitharaman receiving the report submitted by Akhilesh Ranjan, Convener of the Task force constituted by the Government to draft New Direct Tax Law, in New Delhi on Monday, August 19, 2019.   -  @FinMinIndia

Ministry mum on recommendations; report to be placed in public domain

A government-appointed task force on Monday submitted its report to overhaul the six-decades-old Income Tax Act. 

“Union Minister of Finance and Corporate Affairs Nirmala Sitharaman received the report submitted by Akhilesh Ranjan, Convenor of the Task force, constituted by the Government to draft the new Direct Tax Law, in New Delhi today (Monday),” a Finance Ministry tweet read. However, the Ministry kept mum on the recommendations made by the task force. Also, it is yet to place the report in the public domain for further consultation. 

The report has two parts: recommendations and draft Bill. Sources said further action on the report and when the draft will be made public will depend upon the Finance Ministry.

It is believed that the task force has suggested changes in the slab for personal income tax as well as corporate tax. Currently, the personal income tax structure has three categories — for people below the age of 60, for people above the age of 60 but less than 80, and the third for people of 80 years and above.

The first category has four slabs – nil tax on income up to ₹2.5 lakh; 5 per cent tax rate for income between ₹2.50 lakh and ₹5 lakh, 20 per cent tax rate for income between ₹5 lakh and ₹10 lakh and 30 per cent for income above ₹10 lakh. The second category has the basic slab of ₹3 lakh while the third category has ‘nil’ rate for income up to ₹5 lakh. It is believed that the task force has suggested a rejig on these slabs and introduction of a new rate between 5 and 20 per cent.

At present, companies with turnover up to ₹400 crore attract tax at the rate of 25 per cent. This covers 99.3 per cent of all the companies registered. Though numberwise 0.7 per cent is small number, in terms of total tax payout, they contribute the maximum. Now, it is believed that the task force is in favour of detailed timeline for lowering the tax rate from 25 per cent and that too for all the companies.

The taskforce is also understood to have given its recommendation on three contentious issues for the corporate –— tax on long term capital gain (LTCG), dividend distribution tax (DDT) and minimum alternative tax. There is demand that abolishing LTCG and DDT and restructure MAT will bring lot of certainty for the investor community and lead to re-inventing the investment cycle.

The whole exercise aims to replace the Income Tax Act 1961. With every Finance Bill, this Act has undergone so many changes in the last 60 years and has lost its original nature. An attempt was made by the UPA Government to bring a new legislation in 2010 when a taskforce had submitted a draft Direct Tax Code. However, this could not be taken further due to differences within and outside the Government.

Task force timline

 Meanwhile, this process got fresh lease of life in September 2017, when Prime Minister Narendra Modi, during the annual conference of tax officers had observed that the Income-Tax Act, 1961, was drafted more than 50 years ago and it needs to be redrafted. Accordingly, a taskforce was constituted and Arvind Modi, author of DTC 2010, was made convenor.

The taskforce was assigned to draft direct tax laws in line with the norms prevalent in other countries, incorporating international best practices, and keeping in mind the economic needs of the country. The panel was initially supposed to submit its report to the government, within six months, by May 22, 2018, which was extended till August 22 and after further extensions, a new deadline of August 16 was given. In the meantime, Arvind Modi retired last September and the charge was handed over to Ranjan.

Now, the report is expected to be placed for stakeholder consultations and is likely to be placed in Parliament as a part of Union Budget 2020-21.

Published on August 19, 2019
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