In what could come in as a big relief for capital market players, the task force on direct tax code that submitted its report to Finance Minister Nirmala Sitharaman last week has recommended abolishing the dividend distribution tax while retaining the Long Term Capital Gains Tax and Securities Transaction Tax, a source in the know of the development told ET Now. The panel has also suggested reworking the personal income tax rates in a bid to make india a more tax compliant.“The idea behind removal of DDT is to remove the cascading impact of taxation and the panel favours no preferential treatment for any class of investor," said the source.Dividends paid by a domestic company are subject to Dividend distribution tax at 15% of the aggregate dividend declared distributed or paid. The DDT payable is required to be grossed up. The effective rate is 20.3576%, including a 12% surcharge and a 3% education cess.Market participants in a meeting with Finance Minister Nirmala Sitharaman two weeks ago had highlighted that dividends are taxed thrice in the form of corporate tax, dividend distribution tax and finally at the investor level, making Indian capital market quite unattractive globally.The panel favours removal of dividend distribution tax and replacing it with a classical system of taxation under which dividend receipts be declared as normal income. The task force while suggesting changes to Section 115 (o) of the Income Tax Act has recommended that cos be taxed on dividend income that has not been shared with shareholders.“The panel wants to maintain neutrality and favours no differential treatment for any class of financial investor hence Long Term Capital Gains Tax should stay while we decided to retain STT as it helps in better tracking of transactions," another source added.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 is 0.025 per cent of the turnover.Moreover the panel has also suggested gamechanging ideas for rationalising the personal income tax slabs. Sources said the panel has recommended three tax brackets of 5 per cent, 10 per cent and 20 per cent against the prevailing structure of 5 per cent, 20 per cent and 30 per cent.“There could be a temporary blip due to revision of tax slabs. The government will have to take a view on it. It will impact the government coffers for 2-3 years but ease in filing, simplicity in taxation, removal of ambiguous language, minimizing exemptions and a mediation panel for dispute resolution will help in boosting tax compliance”, the source added.The high-level government task force on direct taxes, which was appointed to review the existing 58-year-old Income Tax Act has proposed a new draft law that could reduce the taxation burden for several companies and individuals taxpayers. The government is yet to take a call on the adoption of key recommendations.