Government officials have confirmed that the National Democratic Alliance (NDA) government plans to reform the direct tax regime by increasing the tax rate to 30%. As a result of this initiative, honest individuals and corporate entities find it easier to comply with taxes. In contrast, willful tax evaders will not be able to escape.
During the first term of the NDA government, Goods and Services Tax (GST) was introduced to revamp the tax regime. GST didn’t receive a warm welcome as it subsumed taxes at national, state, and local levels. However, it brought in a uniform tax policy throughout the country.
When it comes to the second term of the NDA government, the ministry is looking forward to framing the Direct Tax Code (DTC). Two officials shared to the Hindustan Times that the reformation will incentivise individuals and companies who voluntarily file their tax returns.
The task force working on DTC is scheduled to submit a report by July 31, 2019. The task force has been reviewing the income tax laws and preparing a new direct tax law simultaneously after scrutinising the economic needs of the country. The report was supposed to be submitted by May 2018; however, some delays occurred.
As per the tax policies, 30% tax is applicable for a taxable income above Rs.10 lakh. In a country with a population of 1.3 billion people, direct taxpayers are as low as 74,127,250 people.
Therefore, the government hopes that lower tax rates will encourage taxpayers to follow the direct tax regime, file tax returns, and pay taxes; increasing the revenue for the tax board. During the financial year that ended on March 31, 2019, the direct tax collections were Rs.11.18 lakh crore unlike the expectation of Rs.12 lakh crore.
The idea of lowering the tax rate will also result in leaving more money for the citizens to spend. This would accelerate economic growth.
Statistics say that economic growth has fallen to a 5-year low of 5.8% in the quarter from January to March, reducing the total growth of the year to 6.8%. Experts stated that the budget to be presented in July 2019 would address the concerns such as sinking economic growth and job creation.
The task force is expected to recommend the rationalisation of a few income tax policies for individuals. The recommendations could increase accountability and transparency, said an industry expert. He also mentioned that submitting the report on time can bring about a few suggestions to reality through amendments in the Income Tax Act.