Evolution and Implementation of Direct Tax Code in India: An Overview





Background and evolution of the Direct Tax Code













The Direct Tax Code would be another step towards the modernization of the Indian Tax regime after the implementation of GST. Simplification of laws by abolishment of irrelevant sections from various acts was one of the primary agendas of the BJP led NDA government and with this regard PM Modi had stated that the 50-year-old Income Tax Act is required to be replaced with the Direct Tax Code (DTC) in order to


simplify the direct tax system of the country. Initial draft bill of the DTC was released by the Government of India in 2009 for public comment and after this; the bill was revised in 2010 and 2013. Revised DTC draft bill, 2013 (DTC 2013) proposed to introduce four major aspects in the direct tax laws, which were as below:








  1. General Anti Avoidance Rules (GAAR)

  2. Place of Effective Management (POEM)

  3. Taxation of Controlled Foreign Companies (CFC)

  4. New rules regarding taxation of fees for technical services, royalty and interest.







In 2017 (November), the Ministry of Finance formed a Taskforce chaired by eminent DTDC Official Arvind Modi to recommend the Government about the inclusions and exclusions criteria of the DTC. This Taskforce has been given a deadline of six months to report the Government.  




Aims of the DTC




The primary goal of the DTC is to make financial inclusion in the economy and to attain this goal; the Government of India wants to include more taxpayers into the list. The aims of the DTC are stated below.




1.     Simplification of direct tax law,




2.     Expansion of the base of tax,




3.     Lowering the corporate tax rate to enhance the competitive environment in the economy,




4.     Decrease the number of litigations. 




Comparison of the provisions of the Direct Tax Code and the existing Income Tax Act




























































Point of Comparison

Direct Tax Code

Income Tax Act, 1961

Residential Status

There will be only two residential statuses: Resident and Non-Resident.

There are three residential statuses: Resident, Non-Resident. Resident but not ordinary resident

Year

Only Financial Year.

The concept of Previous year and assessment year is there in the Income Tax Act.


Income Distributed by LIC companies. and It is to the holders having the equity-oriented life insurance

Taxable @ 5%

Exempt

Income Distributed by Mutual funds companies, and it is to the holders of equity oriented MF’s

Taxable @ 5%

Exempt

Long Term Capital Gain on transfer of listed share or units

Will become part of normal income. But indexation benefit will be there. Since there is a proposal to abolish STT. So STT will not be required to be paid on trading of listed shares

It is exempt.

Assessee Definition

1) Tax-payer or/and who is liable for proceeding under the Act.


2)To whom the amount is refundable


3)finally someone who voluntarily files tax return irrespective of tax liability

1.) Tax-payer or/and who is liable for proceeding under the Act.

Income-Sources

Income is broadly classified into 2 parts


1.Special sources


2.Ordinary sources





  • Employment income

  • House property income

  • Also Income Business

  • Capital Gains

  • Income from Residuary Sources

Income in IT Act has only one part. i.e income from ordinary sources

Tax Rate for ultra-rich (income of 10 crores or more)

35%

30%+surcharge 15%

Taxation of Dividend

15%

Under the Income-tax Act, the dividend distribution tax is to be levied. And it is at the rate of 15 per cent plus cess as applicable.

Who can conduct Tax Audit?

As per the new DTC. CA's, CS's and even cost accountant can do the tax audit

As per IT Act 1961, the tax audit was only done by the CA’s








Present Scenario of DTC and Expected Time of Implementation



The Taskforce formed by the Ministry of Finance was initially given a time limit of six months for reporting the government, which ended on 21st of May, 2018. However, the Taskforce demanded an extension for three months. On the basis of the report, the draft bill shall be prepared, which will be published again for public comment and recommendations of the stakeholders. Hence, it can be stated that the implementation of the DTC (However it will be named as Income Tax) is not possible before 2019 General Elections.  
























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