The new direct tax code: Here’s all you need to know
The proposed direct tax code, the draft of which will be ready by July, will extend 25% corporate tax rate to all firms over time and provide relief to individual income tax payers
What is the new direct tax code about?
The government is preparing a new direct tax code that will replace the Income Tax Act of 1961. The existing direct tax law, which deals with personal income tax, corporate tax and other levies such as the capital gains tax, has undergone numerous changes over the years. In September, Prime Minister Narendra Modi told tax officials that the old law needs changes. The idea is to rewrite it in line with the economic needs of the country and to keep pace with evolving global best practices. One key consideration is to ensure that the economy becomes more tax-compliant to generate enough revenue.
What does the new tax law aim to achieve?
The new direct tax code will try to bring more assessees into the tax net, make the system more equitable for different classes of taxpayers, make businesses more competitive by lowering the corporate tax rate and phase out the remaining tax exemptions that lead to litigation. It will also redefine key concepts such as income and scope of taxation. Globally, governments are racing to woo investments and boost job creation by offering lower corporate tax rates. In December, the US enacted a Tax Cuts and Jobs Act, lowering the country’s corporate tax rate from 35% to 21%. A month later, Apple Inc. said it would invest $30 billion to expand US operations. India’s new direct tax code will take forward the plan to lower the corporate tax rate from 30% to 25% for all firms gradually as revenue collection improves. From 2018-19, the 25% tax rate is available to all firms with sales less than Rs250 crore.
Can individuals expect any relief?
The new direct tax code will try to make personal income tax rates more ‘progressive’ by giving relief to people in the 5% and 20% slabs.
What happened to the tax code planned earlier?
The previous government, too, had proposed a direct tax code with sweeping changes. Although it was never passed by Parliament, the current government has incorporated almost all the new ideas suggested in the code, including lowering the corporate tax rate, phasing out tax exemptions, the General Anti-Avoidance Rules and the place of effective management (POEM) rules that determine the residence status of corporations. New business models, the digital economy and measures taken by other countries to check offshoring are also among the reasons that prompted the move for a new tax code.
Are there any concerns?
Some experts believe this will upset the settled jurisprudence. They say it will be difficult for businesses to cope with structural changes soon after the goods and services tax (GST). Policymakers, however, assert that it is a myth that a new direct tax law will unsettle jurisprudence.
- How politicians give power to the people
- Eye on fiscal deficit, govt may carry over subsidy bills
- Anti-dumping duty on Chinese chemical for 5 years
- No political party can ignore genuine demands of farmers, says P.L. Punia
- 3 Congress CM-designates Bhupesh Baghel, Kamal Nath and Ashok Gehlot to take oath today
Editor's Picks »
- Does Reliance Jio see need to deleverage?
- Four years since Senvion sale, turnaround continues to elude Suzlon
- Falling fuel prices, new axle norms to help cement makers save freight cost
- Tailwinds of debt reduction and annuity sales drive DLF’s shares
- Expecting a quick recovery in rural consumption will be foolhardy