Direct Tax Code

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The direct tax code seeks to consolidate and amend the law relating to all direct taxes, namely, income-tax, dividend distribution tax, fringe benefit tax and wealth-tax so as to

  • Establish an economically efficient, effective and equitable direct tax system.
  • Which will facilitate voluntary compliance.
  • Help increase the tax-GDP ratio.
  • Reduce the scope for disputes and minimize litigation.
  • [IT filed by a person, A IRS officer verify it. Any mistake is their call the person & ask detail. If the detail not provided properly, IRS officer ask the person to pay more tax.
  • Person not satisfied with IRS officer, go to IRS Appeals (If IRS Appeals not satisfied), go to ITAT (If ITAT not satisfied), go to HC (If HS is not satisfied [Some case directly go to SC]), then finally go to SC]
  • IRS Officer → IRS Appeal → ITAT→ HS (Some case directly goes to SC) → SC
It is designed to provide stability in the tax regime as it is based on well accepted principles of taxation and best international practices. It will eventually pave the way for a single unified taxpayer reporting system.
  • The Task Force, initially headed by former CBDT [Central Board of direct Tax] Member (Legislation) Arbind Modi and later on by Akhilesh Ranjan, was constituted in November 2017 in order to review the Income-tax Act and to draft a new Direct Tax Law.
  • The proposals in the draft code are aimed at bringing more certainty to taxation of personal and corporate income and capital gains, and at bringing the gist of numerous judicial pronouncements made since 1961, when the current tax law came into force, in one place for easy reference.
  • It could improve ease of doing business and reduce the compliance burden as well as tax disputes
  • The panel on re-writing the direct tax legislation has submitted its report and a draft of the new proposed version of the Income-tax law to the Government.
  • The Income-Tax (I-T) Act, which was drafted almost 60 years ago, needs an overhaul, and also should be in sync with current times
Recommendations
  • Rejig of tax brackets- to widen them and which can bring a significant relief for the middle and upper middle class people.
  • A common corporate rate of 25% will apply to both large local as well as foreign companies that are present in India without a subsidiary.
  • Removal of Surcharges and Cess- which are currently imposed above a certain income slab and for specific purposes.
  • Negotiated Settlements- a new concept of settling disputes through mediation between the taxpayer and a collegium of officers. Here, the assessee will only have to pay the tax and interest and no penalty in case of a negotiated settlement. (Vivad se Vishwas Scheme – Wapus all Tax case in Court & solve the case through talking).
  • Assessment System- creation of an assessment unit to replace an assessing officer and a separate litigation unit. It has favoured jurisdiction-free, anonymous assessment by domain experts with the involvement of senior officials. (Honouring the Honest System) .
  • Incentives for Start-Ups- by treating them differently from that of a normal company. It is proposed that the funds raised by the start-ups will not require any kind of scrutiny.
  • Reduced Burden of Tax Compliance: Tax compliance based on global trends and best practices. This is expected to increase clarity among taxpayers and also expand the tax base.
  • Use of Artificial Intelligence (AI) in the tax-compliance and administration process.
  • Proposal of introducing collaborative compliance in direct tax administration, which would integrate data from banks, financial institutions and the Goods and Services Tax (GST) network to ensure that the scope of taxable income increases. 

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