Direct Tax Reforms Due to Covid-19 Pandemic

Coronavirus Disease 2019 (COVID-19) is a Pandemic disease as declared by the World Health Organization (WHO) and was identified in Wuhan, China, and is now being spread throughout the world.

Finance Minister via issued guidelines and relaxation in Corporate Filings and also stated various reforms under various Laws:

1. Reduction in the corporate tax rate for all existing domestic companies

• a concessional tax regime of 22% for all existing domestic companies from FY 2019-20, if they do not avail of any specified exemption or incentive.
• Exemption from payment of Minimum Alternate Tax (MAT).

2. The incentive for new manufacturing domestic companies

• Reduction in the tax rate to 15% for new manufacturing domestic companies if such a company does not avail of any specified exemption or incentive.
• attract investment in the manufacturing sector.
• exempted from payment of Minimum Alternate Tax (MAT).

3. Reduction in MAT rate

• the rate of MAT has also been reduced from 18.5% to 15%.
• to provide relief to the companies which continue to avail exemption/deduction and pay tax under MAT

4. Exemption from income-tax to the Taxpayers – under the Finance Act, 2019

• Exemption from income-tax to individuals earning income up to Rs. 5 lakh and an increase in the standard deduction
• the Finance Act, 2019 exempted an individual taxpayer with taxable income up to Rs. 5 lakh by providing 100% tax rebate
• the Finance Act, 2019 enhanced the standard deduction from Rs. 40,000 to Rs. 50,000.

5. To provide a hassle-free direct tax environment the Government has taken various steps for ease of compliance to the taxpayers and also to stimulate the growth by reforming the direct tax system. Following are the major steps:

• Personal Income Tax – Major reform:

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)

  • Aimed 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 – Dispute Resolution Mechanism

to provide for the resolution of pending tax disputes, Direct Tax Vivad se Vishwas Act, 2020 was enacted on 17th March 2020 under which the declarations for settling disputes are currently being filed, 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.

• Faceless E-assessment Scheme — notified on 12th September 2019

• • Provides for a new scheme for making assessment 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 – the next level reforms to eliminate human interface

The Finance Act, 2020 empowered the Central Government to notify Faceless Appeal Scheme in the appellate function of the department between the appellant and the Commissioner of Income-tax (Appeals).

• Document Identification Number (DIN) –

  • An idea 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 – to make tax compliance more convenient

  • Pre-filled Income Tax Returns (ITR) have been provided to individual taxpayers.
  • 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 – facilitating digitalization of the economy

  • Reduction in 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

• • hassle-free tax environment for Startups
  • simplification of the assessment procedure,
  • exemptions from Angel-tax,
  • constitution of dedicated start-up cell 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

  • 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.

• • To reduce taxpayer grievances/ litigation and help the Income Tax Department.

• 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).

Conclusion:

Ministry has come out with various Tax Laws Reforms and provided Compliance Relaxation under Taxation Laws and all these measures will help in Improvement in rankings in ‘starting a business’ and further contributed to the overall improvement in India’s ranking on Ease of Doing Business (EoDB).

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