All about the new Direct Tax Law to replace the Income Act 1961- Key Expectations

Followings are the Key expectations-

  • Simplification of law with lesser sections – The current Income Tax Act, has over 700 sections, whereas the draft of the new income tax law is expected to be half the length, containing around 350-400 sections, with every attempt being made to word it in a simple, lucid manner and keeping the Provisos and Explanations that dominate the 1961 Act, at a bare minimum in the new law.
  • Direct Tax task force recommends new personal income tax slabs- Recommended five tax brackets of 5 per cent, 10 per cent, 20 per cent, 30 per cent and 35 per cent, against the prevailing structure of 5 per cent, 20 per cent and 30 per cent.
  • Expected changes to the tax brackets that is likely to result in significant tax relief for middle class and upper middle class, i.e. those earning upto Rs. 45 – 55 lacs per annum.
  • Common Corporate Tax Rate for Foreign Cos & Domestic Cos.- 25% Corporate tax rate is expected for both Domestic as well as Foreign Companies, being a big slash in corporate tax rate for the foreign companies that currently are taxed at a whopping 40%. However, foreign companies will have to shell out a branch profits tax on the amount repatriated to their foreign headquarters.
  • Change in Tax Assessments Process: The concept of “Assessing Officer” will be replaced by “Assessment Units.” The big change in the new law however is the primacy being given to “Functional Units” that will be made up of IRS officers with Sectoral/Industry knowledge and expertise. Also envisages a Separate Technical Unit of IRS officers to assist the Functional/Assessment Units. Interaction with the tax department is likely to get a boost and facelift with the possible introduction of video-conferencing in certain areas.
  • Litigation Management units– A separate Litigation Management Unit to manage the entire tax litigation process, right from deciding in which cases the appeals ought to be filed, to devising the strategy to defend a case. In essence the officer who drafts the assessment order, will no longer be the one filing appeals.
  • Settlement Through ‘Mediation’-Introduction of the concept of ‘mediation’ for the first time in Indian tax law. Taxpayers will now be able to opt for a negotiated settlement before a Collegium of Commissioners once they receive the draft order. Assisting the negotiations will be mediators on both sides, that will be drawn from a panel. It will substantially reduce tax litigations time taken to resolve the cases.
  • Public Ruling Option for Taxpayers- For the first time again a concept of ‘public ruling’ is being introduced wherein the taxpayers will have the option of approaching the CBDT for clarification on any important point of law, that shall not be case or fact specific.
  • De-linking of transfer pricing assessments from regular assessments- The TP assessments will be carried out by a separate functional unit and they will be done for a block of 4 years. While there may be fewer TP audits based on risk profile of the MNE entities, they are likely to be more intense.
  • Dividend Distribution Tax Elimination- DDT may soon be going and the dividends may be taxed in the hands of shareholders.

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