New Income-tax Bill: Key recommendations in Task Force's Report

New Income-tax Bill: Key recommendations in Task Force's Report

The Government has constituted a task force in November 2017 to draft a new direct tax laws in consonance with economic needs of the country. The proposed new Income-tax law, if accepted, will replace the existing Income-tax Act, 1961 which is a 58 years old legislation. The task force headed

by the CBDT member, Mr. Akhilesh Ranjan has submitted its report on the new Income-tax law. However, the details of report and its recommendations have not been made public as yet.

As gathered from different sources, it appears that the task force has submitted following recommendations in respect of new Income-tax law:

1. Incentives for start-ups

The task force has proposed a slew of incentives for start-ups in its report. With an emphasis on reducing litigation, the report has suggested that the tax treatment for start-ups should be separate.

2. Change in reassessment Rules

The task force has suggested major changes in reassessment provisions in a bid to reduce the litigation. The report has suggested various changes in the current provisions of sections 147 and 148 which empower the Assessing Officers to re-open the assessments. It is recommend to increase the threshold limit for re-opening of cases. Further, the pre-defined criteria to select cases for re-assessment should be more stringent.

3. Abolish Dividend Distribution Tax (DDT)

The task force has recommended to abolish the dividend distribution tax ('DDT'). DDT is a tax which is required to be paid by the companies distributing dividends to its shareholders. It is recommended that instead of levying DDT on companies, the tax should be levied in the hands of shareholders.

4. Reduced 25% tax rates for all corporates

It is recommended to reduce the tax rates for all the corporates to 25%. The existing tax rates for a domestic company and a foreign company are at 30% and 40% respectively.

5. New slab rate for persons having income up to Rs. 50 lakh

The existing Income-tax Act, provides for levy of 5% tax on income ranging between Rs. 2.5-5 lakhs, 20% for Rs. 5-10 lakhs and 30% for more than Rs. 10 lakhs. The task force has recommended to introduce a new slab for those earning up to Rs. 50 lakhs so as to grant relief to individual taxpayers.

6. Assessment units should conduct assessment instead of Assessing Officer

Under the Income-tax Act, Assessing Officers are empowered to carry out assessments of the taxpayers. The report has suggested that regular assessments shall be carried out by 'Assessment Units' instead of 'Assessing Officers'. The task force has proposed to replace the word 'Assessing officer' with 'Assessment Units' in the new Income-tax laws.

7. Functional units would be established based on IRS officer sectorial specialization

The task force has recommended to establish the functional units based on sector-wise specialization of IRS officers. The functional units will carry out transfer pricing assessments and handle industry specific tax matters.

8. Litigation management unit to manage tax litigation process

The number of litigations relating to various provisions of Income-tax Act, 1961 are enormous. To handle such litigations, the Task force has recommended to establish a separate litigation management unit to manage the entire tax litigation process.

9. Taxpayer would be able to approach CBDT for clarification

The task force has recommended to introduce the concept of 'public ruling' whereby taxpayers can approach CBDT for clarification on controversial tax matters.

10. Branch profit tax on repatriation of funds by foreign companies to foreign headquarters

Foreign companies will have to pay branch profit tax in addition to normal tax on repatriating funds to foreign headquarters.

11. Penal of mediators for settlement of the tax disputes

The task force has recommended to form a penal of 'mediators' who would assist in negotiation between tax department and the taxpayers for the settlement of tax disputes.

12. Transfer pricing assessment would be carried out by separate functional unit

The task force has recommended to separate transfer pricing assessments from regular assessments. Further, transfer pricing assessment will be carried out by functional unit.

13. No inheritance tax

There were speculations that the Government may reintroduce the Inheritance Tax in the Union Budget 2019 to enhance tax revenue but no such proposal was actually made in the Budget. The task force has also not recommended to levy inheritance tax.

14. Video recording of statements

The task force has recommended video recording of statements made during the course of search & seizure and survey operations. This will help dept. to have evidence that no pressure or coercion was applied on person while recording the statement.

15. Restructuring of MAT provisions

Minimum Alternate tax (MAT) is payable by the companies whose tax on total income is less than 18.5% of 'book profit'. The task force has recommended restructuring of existing MAT provisions.

16. Artificial intelligence for tax compliance

The report has suggested use of artificial intelligence (AI) in the tax-compliance and administration process. It has been proposed to introduce collaborative compliance in direct tax administration which will integrate data from banks, financial institutions and GST network. This will done to ensure that the scope of taxable income increases.

17. Abolish tax on long-term capital gain arising from transfer of listed securities

The Finance Act, 2018 has withdrawn the exemption under section 10(38) of the Income-tax Act, 1961 and has introduced a new section 112A which provides that long-term capital gains (LTCG) arising from transfer of a long-term capital asset, being an equity shares or specified units, shall be taxable at the rate of 10% if such capital gains exceed Rs. 1 lakh. The task force has recommended to remove such tax in the new Income-tax law.