Direct Tax Code-What to Expect

Namrata Arora, Sr Mgr, Sagar Chaturvedi, Assistant Mgr, Deloitte Haskins and Sells LLP




On November 22, 2017, the Ministry of Finance (Finance Ministry), set up a task force to draft a new direct tax law (Direct Tax Law/DTL) to replace the five-decade old Income tax Act, 1961 (Income tax Act/Act), to align with the direct tax system prevalent in various countries, international best practices, the economic needs of the country and other related matter.

DTL is an initiative of the government of India to replace the existing Income Tax Act and simplify the direct tax laws in India and to create an economical, efficient and impartial direct tax system in the country. Once implemented, DTL shall be a single consolidated direct tax law in India replacing the Income Tax Act and the Wealth Tax Act, 1957, since the same have become voluminous and complex on account of various amendments over time.

The erstwhile proposed Direct Taxes Code (DTC) had been a subject matter of discussion since 2009 and has so far covered the following milestones:

 

August 2009

Initial draft DTC with a concept paper was released and public suggestions were invited.

 

 

August 2010

Direct Tax Code Bill, 2010 was introduced in Lok Sabha.

 

 

 

March 2014

Direct Tax Code 2013 (revised version including suggestions of SCF) was released

 

 

 

 

June 2010

Revised discussion paper incorporating suggestions from various stakeholders was released.

 

 

March 2012

Standing Committee on Finance (SCF) submitted its report to Indian Parliament after examining the Bill.

 

 

November 2017

Constitution of Task Force by Finance Ministry to draft a new direct tax legislation.

 

 

The task force set up by the Finance Ministry in November 2017, was given a time of six months to submit its report to the government. Accordingly, the report of the said task force on DTL is likely to be released in May.

We have tried to outline the broad impact/expectations from the DTL:

Since the existing Income Tax Act has become voluminous and complex on account of various amendments over time, the new DTL should be simple, easy to understand and more comprehensive.

Aligning with the direct tax laws prevailing in other countries and with international best practices, the new DTL should remove existing ambiguities in the Income Tax Act that have been so far leading to base erosion and profit shifting.

The Finance Act, 2018 has reduced the corporate tax rate to 25% for specified companies and in light of various investment-linked tax deductions available in the existing Income Tax Act, DTL should withdraw Minimum Alternate Tax (MAT) provisions or reduce the MAT rate so as to ensure that the benefits given to tax payers are not taken away due to levy of MAT.

DTC should provide for a mechanism to be followed for tax recoveries, stay of demands and deciding appeals in cases where favorable judicial precedents exist, in order to reduce needless tax litigation, uncertainties and lawsuits.

DTC should also provide for an effective and efficient administration and be aligned with the government’s idea of “ease of doing business” by simplifying and reducing compliance burden on the tax payer and be able to attract foreign investments.

Various schedules, such as a timeline for issuance of Nil/lower withholding tax certificates under section 197 of the Act, disposal of appeals by the Commissioner of Income tax (Appeals) [CIT(A)] etc., passing appeal effect orders etc., should be incorporated in the legislation itself and a mechanism to monitor their adherence be prescribed.

Procedure for fast processing of tax refunds without human interventions (online processing) should be introduced in order to reduce hardships caused to tax payers.

 

About the Author

Namrata is a Senior Manager in the Tax group and is based in Delhi. She has experience in corporate income tax matters that include advising multinational companies in formulating an entry strategy into India, inbound investment advisory, outbounds structuring, repatriation and exit options in a tax efficient manner, transaction structuring, matters related to double taxation avoidance treaties and domestic income tax issues relating to companies in India.

Namrata is also well versed in compliance matters relating to corporate income-tax returns, audits and assessments by revenue and appeals before the appellate authorities, tax tribunals and courts. She has also assisted senior counsels in appeals before the courts. She has worked on a wide range of fiscal and regulatory issues including investments structuring.

 

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Disclaimer: Above expressed are the personal views of the author, and the publisher or the author disclaim all, and any liability and responsibility, to any person on any action taken on reliance of it.