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TASK FORCE REPORT ON DIRECT TAX CODE, PUBLIC FINANCE - Coggle Diagram
TASK FORCE REPORT ON DIRECT TAX CODE
Context:
A committee headed by CBDT member Akhilesh Ranjan submitted its report on replacing the Income Tax Act with a new Direct Tax Code.
What is Direct Tax Code?
Possible Impact of Implementation of DTC
The new direct tax code will try to bring more assesses into the tax net, make the system more equitable for different classes of taxpayers, make businesses more competitive by lowering the corporate tax rate and phase out the remaining tax exemptions that lead to litigation.
Important Terminologies used in the Report
⦁ Branch Profit Tax: Tax imposed on the branches of foreign companies in addition to the normal corporate income tax on the branch’s income. This is equivalent to the tax on dividends which would be due if the branch had been a subsidiary of the foreign company and had distributed its profit as dividends.
⦁ Dividend Distribution Tax (DDT): The Dividend Distribution Tax is a tax levied on dividends that a company pays to its shareholders out of its profits. It is taxable at source and is deducted at the time of the company distributing dividends.
⦁ Transfer Pricing: Transfer pricing is an accounting and taxation practice that allows for pricing transactions internally within businesses and between subsidiaries that operate under common control or ownership.
⦁ The transfer pricing practice extends to cross-border transactions as well as domestic ones.
⦁ The “arm’s-length principle” of transfer pricing states that the amount charged by one related party to another for a given product must be the same as if the parties were not related. An arm’s-length price for a transaction is therefore what the price of that transaction would be on the open market.
⦁ Advance Pricing Agreements (APAs):
An APA is a contract between a taxpayer and at least one tax authority specifying the pricing method that the taxpayer will apply to its related-company transactions.
⦁ These programmes are designed to help taxpayers voluntarily resolve actual or potential transfer pricing disputes in a proactive and cooperative manner.
⦁ APAs gives certainty to taxpayers, reduce disputes, enhance tax revenues and make the country an attractive destination for foreign investments.
⦁ These agreements wouldbe binding both on the taxpayer as well as the government.
⦁ The government aims to simplify the structure of direct tax laws in India into a single legislation through Direct Taxes Code (DTC).
⦁ The DTC will replace the Income-tax Act, 1961, and other direct tax legislation like the Wealth Tax Act, 1957.
⦁ The first attempt was made in 2010 by the introduction of the New Direct Tax Code (DTC) 2010 by former Finance Minister, Pranab Mukherjee.
⦁ After deliberation, a revised version of the DTC was introduced in 2013, without success.
⦁ The current government again attempted to further revise the DTC in 2017 and a task force was formed in this regard.
PUBLIC FINANCE