Direct taxes in India will be a lot simpler if Nirmala Sitharaman accepts these 3 proposals

  • According to reports, a taskforce proposed a uniform rate of tax at 25% for both foreign and domestic companies.
  • It is also considering doing away with dividend distribution tax, which will help retail investors.
  • As per the new code, ‘assessing units’ will replace ‘assessing officers’.

The Indian taxation system has earned more red marks than their international counterparts in the last decade or so. Not only does the country have one of the most complex taxation system in the Asia Pacific, it is also opaque making it tougher to interpret leading to disputes.

But the country’s finance minister Nirmala Sitharaman is looking to change all that. She is known to have appointed a government taskforce which will rethink the entire system, according to an ET report.

The panel has proposed to alter tax brackets, revamp the Income Tax Act and make it tax-payer friendly. The report also quoted a government source which said that the new regime that the current government will herald will make it easy for taxpayers to comply with.


Lesser tax, fewer brackets

This includes individual taxpayers as well as businesses. According to a Business Standard report, the Direct Tax Code 2.0 as they called it, proposed a uniform rate of tax at 25% for both foreign and domestic companies. This would bring in more foreign investments into the country. It is also considering doing away with dividend distribution tax, which will help retail investors and also those companies which would want to reward their shareholders.

This would be a welcome relief for stock markets which have been fighting a losing battle with the government over clarification on Goods and Services Tax on foreign portfolio investments or FPIs.


Temporary surcharge

This Budget also made an unpopular move to introduce a surcharge on the super rich. The government increased tax on those with annual income of ₹2.5 crore to 25% from 15%. Those who earn more than that were to be taxed at 37%.

The panel is recommending the government to turn this surcharge on super-rich ‘temporary’ providing relief to the many high-networth individuals in India.


Managing litigation

The report also said that as per the new code ‘assessing units’ will replace ‘assessing officers’. It also allows for settlement via mediation instead of prolonged tax battles which financially stress the taxman as well as the assessee.

Tax litigation has been affecting the government as well as the taxpayers due to long-standing court battles. As much as ₹5.71 lakh crore is tied up in tax litigation as appeals on tax decision pile up. In fact, Central Board of Direct Taxes itself said that it will focus on litigation management.


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