New tax code set to benefit all businesses, small taxpayers
A new direct tax code the government is working on will be a boon for business and small personal income tax payers. The new code, whose draft will be ready by July, will replace the Income Tax Act, 1961. The agenda of the code is to reduce corporate taxes to 25% for all businesses, and give relief to lower-income personal income tax payers.
Tax cuts will be implemented on an incremental basis
The idea is to make industry more competitive by lowering and moderating taxes but without losing the recent gains in revenue growth and tax base which were spurred by the demonetization move and the implementation of GST. Therefore, the tax rate cuts will be implemented on an incremental basis over a period of time as revenue collection, tax base, and compliance grow.
Income tax return filings have increased by 80%
In the period between fiscal 2014 and fiscal 2018, income tax returns filed in India saw a massive surge of over 80%, bringing the total to 68.4 million.
Reduction in corporate taxes to cover all companies eventually
The benefit of a lower corporate tax of 25% was extended to companies with annual revenue less than Rs. 50cr in 2017-18. In 2018-19, it was extended to cover companies with annual sales of up to Rs. 250cr. The new code will pave the way for extending this to all companies. Reducing corporate tax has become a policy priority for nations wooing investment.
Proposed changes for personal income tax
A source, on the condition of anonymity, revealed that the highest personal tax slab of 30% for individuals will remain untouched as it's one of the lowest in the world. However, personal income tax payers in lower tax slabs will get more relief. The specifics aren't known yet. The change could be electorally beneficial for the ruling NDA government ahead of the 2019 elections.
Efforts to increase India's tax-to-GDP ratio also on the cards
On the issue of tax evasion, the new code will seek to reduce it and improve compliance in a bid to increase India's tax-to-GDP ratio. The idea is to increase the share of direct taxes in GDP to at least 9% in the short term from the 5.8% in FY2018 and the projected 6.1% in FY2019.
