How Latest Income Tax Rules May Impact Taxpayers

The draft legislation concerning the new Direct Tax Code (DTC) has been submitted to the finance minister, Nirmala Sitaraman this past Monday. The task force behind this new DTC draft headed by Principal Chief Commissioner of Income Tax Akhilesh Ranjan was formed back in November 2017. This panel has been assigned the responsibility of reviewing the six-decade-old Income Tax Act and propose new changes that are yet to be made public. 

Here are some key announcements that are likely to be made while passing new income tax laws: 

Individual Taxpayers Will Save More Money

The new Direct Tax Code is likely to benefit the individual taxpayers a lot. This new direct tax code might adjust the tax bracket below INR 55 lakh in such a way that it will help individuals taxpayers save more money in their hands. The disposable income left with taxpayers will increase ais consumption, which will ultimately boost economic growth. 

‘Assessing Unit’ will Replace  ‘Assessing Officer’

To check tax scam or fraud done by taxpayers, ‘assessment units’ will be formed, replacing the old ‘assessment officers.’ Corporate taxpayers will also put under the radar of assessment units, including multiple officers and tax specialists. The communication between the taxpayers and taxmen would be digital with the facility of anonymous codes for identification purposes. 

Uniform Corporate Tax

New Direct Tax Code is likely to reduce the tax burden on India that is also a key contributor to the recent economic slowdown.  The new tax law is likely to eliminate surcharges on income and will also reduce corporate tax to 25 percent across the board.

At present, 25 percent corporate tax on small companies with revenue up to INR 400 crore 30 percent on large domestic companies with revenue above INR 400 crore, and 40 percent on foreign firms along with a 4 percent health & education surcharge on total tax payments are levied by the Indian government. 

Apparently, this is the highest tax rate in the world. Besides this, a 12 percent surcharge on domestic companies and 5 percent on foreign companies are levied,  having taxable income over INR 10 crore.

Finance Minister, Sitharaman during the budget speech on July 5, 2019, had announced that companies with annual turnover up to INR 400 crore would be taxed at the lower rate of 25 percent, a step taken towards reducing the high tax rates. With this new initiative taken by the government, the majority ( 99.3%) of the companies are now covered by the lower corporate tax rate. A special set of incentives & provisions for startups might also be seen with the new laws related to direct taxes. 

Earlier, the facility of lower tax rate was only applicable to companies, having an annual turnover up to Rs 250 crore while the rest of the companies in India have to bear a heavy tax rate of 30 percent. 

No Dividend Distribution Tax for Companies

The new direct tax code will also assist companies with dividend distribution tax by allowing it to be taxed only at the shareholder’s end. 

Applicability of Repatriation Tax for Foreign Companies

A “branch profit tax” for foreign firms earnings that they repatriate to their overseas parent might also be levied as per the upcoming Direct Tax Code. This will be over and above the corporate tax.

Change in Personal income tax Slab Rates

The new tax laws proposed by the Akhilesh Ranjan-led Task Force is likely to simplify tax brackets as well as remove additional surcharges in order to provide relief to middle-income taxpayers from the tax burden. As per the rumors, the Direct Tax Code panel will suggest the introduction of 

  • 10 percent tax rate slab for annual income between INR 2.5 lakh and INR 10 lakh
  • 20 percent slab for the INR 10-20 lakh income bracket
  • 30 percent, or higher, slab for higher income levels.

If this happens, it will offer major relief to those taxpayers falling under INR 5-8 lakh tax slab, who are paying taxes at a 20 percent rate since 2010-11. The upper threshold for income level for this rate has been increased to INR 10 lakh for FY13.

Simplified Tax Law

It is a well-known fact that the 700-odd sections in the six-decade-old Income-tax Act are too much complex. Hence, with the new Direct Tax Code, the tax laws will be simplified, containing less than 400 sections. Compliance with tax laws will be easier for taxpayers with some announcements under the Direct Tax Code. 

As per the sources, the draft of the new tax code will allow the person to pay tax against 10 items out of the 20, for which he has received a (tax) demand order. The assessee has a choice that of the 20 items if he agrees on 10, he can pay the tax on those 10 items and avoid paying any interest and penalty on the same. 

For the remaining 10 items, the assessee needs to sign a negotiated settlement, after which he/she has to pay the tax only on the remaining items and interest. Assessee can avoid paying the penalty for the remaining ten items by signing a negotiation agreement. If one does not agree with anything, then the same will be given the option of partly agree & partly litigate. All such moves will be taken to slash tax litigations that have long plagued the Income Tax Department.

Formation of a Litigation Management Unit

All the tax litigation process will be handled by a Litigation Management Unit under the new income tax law. Also, the officer raising the tax demand will not be allowed to file litigation in the same case.

Mediation

The new tax laws might also introduce the idea of settling the tax disputes through mediation between the taxpayers and the Collegium of Commissioners. This will help avoid tax litigation.

Eradication of Legal Ambiguity

Provisions and explanations that are a vital part of the current Income-Tax Act are reported to be kept to a minimum in order to make a new law easy, comprehend, and safe from multiple interpretations.

Eight-member panel devised report will be published by the government soon in the public domain for consultations after overseeing all the recommendations. Some might also be included in the government’s 2020-21 budget proposals.

So, some people may find it troublesome and baffling to keep such a big bunch of information in their mind while focusing on their core job. It germinates a demand for an all-inclusive solution or like filing Income tax return Via Gen IT Software that can take care of every minute details, comply with government rules and regulations and automate the filing process while ensuring promptness and error lessness.