The Indian government is soon coming out with a new Direct Tax Code to replace the existing Income Tax Act, 1961. The direct tax committee entrusted with the preparation of the tax code is likely to submit its report to the finance ministry on Aug 15, 2019 and the government would immediately review its recommendations, announced Finance Minister Nirmala Sitharaman while speaking at a Confederation of Indian Industry (CII) interaction.
The new direct tax code may give relief to people in the 5% and 20% slabs. It is also aimed at reforming the complex income tax laws into simpler tax codes with reduced rates, fewer exemptions, and tax slabs.
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.
The new direct tax code will bring more assesses 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.