You are here: Home » Economy & Policy » News
Business Standard

Direct Taxes Code panel for status quo on LTCG tax, STT; wants DDT to go

Suggests rejig of 20% and 30% slabs of personal income tax

Dilasha Seth  |  New Delhi 

Direct tax

The task force to overhaul the nearly 60-year-old Act has recommended retaining the long-term capital gains (LTCG) and the securities transaction (STT), while abolishing the dividend distribution tax (DDT). The panel has instead suggested imposing tax on the person receiving dividends, sources in the know said.

The proposed move to withdraw the would help encourage investments by addressing multiple of income and bringing down the effective tax rate on companies, which is among the highest in the world, the sources said.

The eight-member panel on the code (DTC), which submitted its report to Finance Minister Nirmala Sitharaman last week, has proposed a range of reforms for personal by rationalising the highest tax slabs of 20 per cent and 30 per cent to improve compliance.

Although the market has been demanding the withdrawal of the reintroduced in last year’s Budget, the panel, led by Central Board of Member Akhilesh Ranjan, is learnt to have taken a view that no preferential treatment must be given to any class of investors. The is levied on gains arising from the transfer of listed equity shares exceeding Rs 1,00,000, at 10 per cent.

Besides, the case for retaining the STT has been its simplicity of collection and assured revenues. The STT is a direct tax payable on the value of taxable securities transactions done through a stock exchange.

It is levied at 0.1 per cent of turnover for delivery-based equity transactions, while for intra-day transactions, the STT for purchase is nil, and for sale, it is 0.025 per cent of the turnover.

“There is a strong case to do away with the to improve investor sentiment. It is resulting in multiplicity of for companies. Besides, foreign shareholders cannot avail of foreign tax credit as the is not borne directly by them,” said a person in the know. “LTCG should continue to be levied as is the case today to promote parity.”

Direct Taxes Code panel for status quo on LTCG tax, STT; wants DDT to go

The DDT results in the cascading of taxes as companies pay dividends out of profits which are already taxed. The DDT becomes a cost for foreign shareholders as they find it difficult to avail of foreign tax credits for it, which is a credit in home country for taxes paid overseas. It would also help domestic investors as they can take credit of the DDT while paying or refund if their tax liability is nil.

“The idea is to go back to the classical way of taxing dividends in the hands of shareholders,” another source said.

This will need changes in Section II5 (O) of the Income Tax Act. The current DDT rate stands at 20.55 per cent including surcharge and cess.

“This (removing DDT) has been a long-standing demand of the industry as this leads to triple and increased tax cost for investors in general. Overseas Investors are not able to take credit of the DDT in their home country and this adds to their tax cost. This also makes India competitive vis-a-vis other countries," Amit Maheshwari, managing partner at Ashok Maheshwary & LLP said.

He said shifting the taxation of dividend to the recipient would enable MNCs to utilise the DTAAs with India more effectively to reduce the tax paid on dividends and also claim a credit of that in the home country. “It is expected that this will also bring down the effective tax rate of India which has been repeated called as very high internationally,” he said.

For the personal income tax, the task force has recommended reworking slabs of 20 per cent and 30 per cent to improve compliance.

The committee was constituted to look into the direct tax system prevalent in various countries, international best practices, the economic needs of the country, and other related matters.

The panel also looked into administration and improvement in revenue targeting, data collection and tax intelligence.

The high level panel also recommended slashing the corporate tax rate to an even rate of 25 per cent for both domestic and foreign companies.

First Published: Wed, August 28 2019. 00:58 IST
RECOMMENDED FOR YOU