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Sunday, Sep 22, 2019

Govt panel recommends relief for middle class, cut in corporate tax

The draft code also proposes incentives to startups and a new concept of settling disputes through mediation between the taxpayer and a collegiums of officers, said a person familiar with the contents of the report submitted to finance minister Nirmala Sitharaman on Monday.

business Updated: Aug 20, 2019 15:05 IST
Gireesh Chandra Prasad
Gireesh Chandra Prasad
Livemint, New Delhi
Finance minister Nirmala Sitharaman receives the report of the new direct tax code panel from its head Akhilesh Ranjan, a member of CBDT, and other members of the panel, in New Delhi on Monday.
Finance minister Nirmala Sitharaman receives the report of the new direct tax code panel from its head Akhilesh Ranjan, a member of CBDT, and other members of the panel, in New Delhi on Monday.(PTI)
         

A government panel tasked with overhauling the nearly six-decade-old Income-Tax Act on Monday recommended significant relief for taxpayers, including an across-the board 25% tax rate for both local and foreign companies and changes in personal tax slabs to benefit middle and upper middle class Indians.

The draft code also proposes incentives to startups and a new concept of settling disputes through mediation between the taxpayer and a collegiums of officers, said a person familiar with the contents of the report submitted to finance minister Nirmala Sitharaman on Monday. The government will release the report of the panel, led by Central Board of Direct Taxes (CBDT) member Akhilesh Ranjan, in the public domain for consultations after examining the recommendations, a second person said on condition of anonymity.

The proposed corporate tax reduction will apply to both large local as well as foreign companies that are present in India without a subsidiary and are taxed at 40%. Unlike domestic firms, foreign companies pay a higher corporate tax rate, but do not have to pay dividend distribution tax that is applicable to domestic companies.

Also read: India can become $5 trillion economy at 10% growth rate, says NDB chief

At present, domestic companies with sales of as much as ₹400 crore pay a lower 25% rate and bigger companies, which account for the lion’s share of the government’s tax revenue, pay 30%, excluding the surcharge and cess on the income-tax outgo. If implemented, the tax rate reduction could prove to be a big fiscal stimulus for the corporate sector reeling under a sharp economic downturn. While the new direct tax law will bring to force new taxation concepts as well schemes to reduce litigation, the actual tax rate reduction may be executed as part of annual Finance Bills, depending on the revenue buoyancy of the government from time to time.

The Code has a surprise for foreign companies. The draft proposes a ‘branch profit tax’ for such entities on the earnings that they repatriate to their overseas parent. It remains to be seen what would be the net effect of the branch profit tax and the reduced corporate tax rate for them.

Also read: ‘We’ve given ourselves achievable targets,’ says Nirmala Sitharaman

The Tax Cuts and Jobs Act rolled out by the US government in 2017 encourages overseas arms of American companies to repatriate their profits to their parent companies. The first person cited above said a major restructuring of the personal income tax too has been proposed to benefit the middle class and upper middle class.

The task force also recommended that the assessment proceedings be made faceless, and an option be allowed to the public to seek clarifications on tax matters from the Central Board of Direct Taxes (CBDT).

First Published: Aug 20, 2019 08:01 IST