Major taxation related reforms introduced in recent times

  • Indirect taxes reforms: The integration of State and Central indirect taxes in the GST led to the abolition of entry tax and the Central Sales Tax (CST). This has had important spillover effects on the economy. The abolition of the entry tax has reduced trip times on the major road corridors leading to cost benefits for the manufacturers. GST stands for Goods and Services Tax. It is an Indirect tax which introduced to replace a host of other Indirect taxes such as VAT service tax, purchase tax, excise duty, and so on. GST levied on the supply of certain goods and services in India. It is one tax that is applicable all over India.
  • Reduction in the corporate tax rate for all existing domestic companies: In order to promote growth and investment, the Government has brought in a historic tax reform through the Taxation Laws (Amendment) Ordinance 2019 which provided a concessional tax regime of 22% for all existing domestic companies from FY 2019-20 if they do not avail any specified exemption or incentive. Further, such companies have also been exempted from payment of Minimum Alternate Tax (MAT).
  • The incentive for new manufacturing domestic companies: In order to attract investment in the manufacturing sector, the Taxation Laws (Amendment) Ordinance 2019 has drastically reduced the tax rate to 15% for new manufacturing domestic companies if such company does not avail any specified exemption or incentive. These companies have also been exempted from payment of Minimum Alternate Tax (MAT).
  • Reduction in MAT rate: In order to provide relief to the companies which continue to avail exemption/deduction and pay tax under MAT, the rate of MAT has also been reduced from 18.5% to 15%.
  • Exemption from income-tax to individuals earning income up to Rs. 5 lakh and increase in standard deduction: Further, to provide complete relief from payment of income-tax to individuals earning taxable income up to Rs. 5 lakh, the Finance Act, 2019 exempted an individual taxpayer with taxable income up to Rs. 5 lakh by providing 100% tax rebate. Also, to provide relief to the salaried taxpayers, the Finance Act, 2019 enhanced the standard deduction from Rs. 40,000 to Rs. 50,000.

The Government is committed to providing a hassle-free direct tax environment with moderate tax rates and ease of compliance to the taxpayers and also to stimulate growth by reforming the direct taxes system. Some of the recent steps taken in this direction, apart from those discussed above, are as under:

  • Personal Income Tax –In order to reform Personal Income Tax, the Finance Act, 2020 has provided an option to individuals and co-operatives for paying income tax at concessional rates if they do not avail of specified exemption and incentive.
  • Abolition of Dividend Distribution Tax (DDT) – In order to increase the attractiveness of the Indian Equity Market and to provide relief to a large class of investors in whose case dividend income is taxable at the rate lower than the rate of DDT, the Finance Act, 2020 removed the Dividend Distribution Tax under which the companies are not required to pay DDT with effect from 01.04.2020. The dividend income shall be taxed only in the hands of the recipients at their applicable rate.
  • Vivad se Vishwas – In the current times, a large number of disputes related to direct taxes are pending at various levels of adjudication from Commissioner (Appeals) level to Supreme Court. These tax disputes consume a large part of resources both on the part of the Government as well as taxpayers and also deprive the Government of the timely collection of revenue. With these facts in mind, an urgent need was felt to provide for the resolution of pending tax disputes which will not only benefit the Government by generating timely revenue but also the taxpayers as it will bring down mounting litigation costs and efforts can be better utilized for expanding business activities. Direct Tax Vivad se Vishwas Act, 2020 was enacted on 17th March 2020 under which the declarations for settling disputes are currently being filed.
  • Faceless E-assessment Scheme – The E-assessment Scheme, 2019 has been notified on 12th September 2019 which provides for a new scheme for making assessments by eliminating the interface between the Assessing Officer and the assessee, optimizing the use of resources through functional specialization, and introducing the team-based assessment.
  • Faceless appeals –In order to take the reforms to the next level and to eliminate human interface, the Finance Act, 2020 empowered the Central Government to notify the Faceless Appeal Scheme in the appellate function of the department between the appellant and the Commissioner of Income-tax (Appeals).
  • Document Identification Number (DIN) – In order to bring efficiency and transparency in the functioning of the Income Tax Department, every communication of the Department whether it is related to assessment, appeals, investigation, penalty, and rectification, among other things, issued from 1st October 2019 onwards are mandatorily having a computer-generated unique document identification number (DIN).
  • Pre-filling of Income-tax Returns – In order to make tax compliance more convenient, pre-filled Income Tax Returns (ITR) have been provided to individual taxpayers. The ITR form now contains pre-filled details of certain incomes such as salary income. The scope of information for pre-filling is being continuously expanded by pre-filling more transactions in the ITR.
  • Encouraging digital transactions – In order to facilitate the digitalization of the economy and reduce unaccounted transactions, various measures have been taken which include reduction in the rate of presumptive profit on digital turnover, removal of MDR charges on prescribed modes of transactions, reducing the threshold for cash transactions, prohibition of certain cash transactions, etc.
  • Simplification of compliance norms for Start-ups – Start-ups have been provided a hassle-free tax environment which includes simplification of the assessment procedure, exemptions from Angel-tax, the constitution of dedicated start-up cells, etc.
  • Relaxation in the norms for Prosecution: The threshold for launching prosecution has been substantially increased. A system of the collegium of senior officers for sanction of prosecution has been introduced. The norms for compounding have also been relaxed.
  • Raising of monetary limit for filing of appeal – To effectively reduce taxpayer grievances/ litigation and help the Income Tax Department focus on litigation involving complex legal issues and high tax effects, the monetary thresholds for filing of departmental appeals have been raised from Rs. 20 lakh to Rs. 50 lakh for appeal before ITAT, from Rs. 50 lakh to Rs. 1 crore for appeal before the High Court and from Rs. 1 crore to Rs. 2 crores for appeal before the Supreme Court.

Expansion of scope of TDS/TCS – For widening the tax base, several new transactions were brought into the ambit of Tax Deduction at Source (TDS) and Tax Collection at Source (TCS). These transactions include huge cash withdrawals, foreign remittances, purchases of a luxury cars, e-commerce participants, sales of goods, acquisition of immovable property, etc.