In News Recently, the panel set up to overhaul the direct tax legislation has submitted its report and a draft of the new proposed version of the Income-tax law to the Government. A substantial cut in personal income taxes that will bring relief to India’s middle class, and also a lower corporation tax are among the major recommendations of the direct tax code (DTC) panel. Background The Direct Tax Code task force was set up to overhaul 58 years old Income tax legislation and to draft a new Direct Tax Law. It was initially headed by former CBDT Member Arbind Modi and later on by Akhilesh Ranjan. It was constituted in November 2017. Suggestions of the panel The panel on the Direct Tax Code (DTC) suggested a reorganization of personal income tax slabs, corporate tax rate cut to 25% for companies and provisions to reduce compliance burden. It has also suggested some changes in the Dividend Distribution Tax and Minimum Alternate Tax. The new direct tax law will bring new taxation concepts as well as schemes to reduce litigation The actual tax rate reduction can be executed as part of the annual Finance Bills and shall depend on the revenue buoyancy of the government from time to time. Personal Income Tax The current personal income tax structure is divided into three categories based on age- first, the persons below 60 years; second, persons between 60-80 years, and lastly people above 80 years. The first category are taxed nil for income up to 2.5 lakh, 5 percent for income between Rs 2.5 to Rs 5 lakh, at 20 percent for income between Rs 5 lakh and Rs 10 lakh, and 30 percent for income over Rs 10 lakh. Basic slab for the second category being 3 lakh and for the third being 5 lakh up to which they are taxed at 'nil' rate. The panel on Direct Tax Code (DTC) has suggested a cut in personal income tax rates with revised rates of 5 percent, 10 percent, and 20 percent. Lowering the personal income tax slabs could hit the fiscal by up to 30 basis points, with a loss in revenue for the next two to three years. However, higher tax buoyancy due to greater compliance could be seen in about three years, the panel added. Corporate Tax suggested @ 25 % The Panel recommends to the government to cut down the corporate tax rate gradually to 25% for all companies, including the large ones with an annual turnover of over Rs 400 crore. The corporate tax reduction proposal shall apply to both large local as well as foreign companies that are present in India without a subsidiary and are taxed at 40%. The implementation of the proposal could prove to be a big fiscal stimulus for the corporate sector. The Burden of Tax Compliance to be Reduced The panel proposes: •The Tax Compliance to be on the lines of global trends and practices. •Artificial Intelligence (AI) in the tax-compliance and administration process to be used. •Introduction collaborative compliance in direct tax administration Direct Tax Code The Direct Tax Code aims to simplify, consolidate, revise and streamline the structure of direct tax laws. If implemented, it will replace the Income-tax Act of 1961 and all other direct tax legislations. Direct Tax Code- a brief timeline The Direct Tax Code was first drafted in 2009 and introduced in Parliament in August 2010 by the then Finance Minister Pranab Mukherjee. It was initially proposed to be effective from April 2012 but got deferred. It was modified and introduced again in 2013 but lapsed with the dissolution of the 15th Lok Sabha. DTC- Taskforce The Direct Tax Code task force was set up in November 2017 and was to submit a report within 6 months and was subsequently given a three-month extension till August. The task force was set up following Prime Minister Narendra Modi’s observation at Rajaswa Gyan Sangam that the Income Tax Act prepared 50 years ago needed to be re-drafted. The panel could not submit a report following disagreements on various aspects The panel got reconstituted in November 2018, after the retirement of its previous convenor Arbind Modi in September 2018 and a new panel led by Akhilesh Ranjan submitted the report recently on 19th August 2019.

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