New Delhi/Bhubaneswar: The existing Income Tax Act may soon be replaced by a new direct tax law. Arbind Modi, the person who helped to draft the Direct Tax Code 2009, was given the task again on Thursday to draft a new law to meet the contemporary economic needs of the country.
The six-member taskforce led by Modi, Member, Central Board of Direct Taxes (CBDT), has to make direct taxes - income and corporate - simple by replacing the 56 year old Income Tax Act, as reported by Republic World.
The move comes ahead of BJP-led government's last full Budget and within months of the launch of Goods and Services Tax (GST) that overhauled the indirect tax regime by unifying more than a dozen central and state levies, including excise duty, service tax and VAT.
Earlier in September, Prime Minister Narendra Modi, during the annual conference of tax officers, had observed that the Income-tax Act, 1961 needs to be redrafted.
"Accordingly, in order to review the Act and to draft a new direct tax law in consonance with economic needs of the country, the Government has constituted a task force," a finance ministry statement said.
The task force also includes Girish Ahuja (chartered accountant), Rajiv Memani (Chairman and Regional Managing Partner of EY), Mukesh Patel (Practicing Tax Advocate), Mansi Kedia (Consultant, ICRIER) and G C Srivastava (retired IRS and Advocate). India's Chief Economic Adviser (CEA) Arvind Subramanian will be a permanent special invitee on the panel.
They will work together to submit a report to the government within six months by drafting direct tax laws in line with tax laws prevalent in other countries, incorporating international best practices, and keeping in mind the economic needs of the country.
While Modi had assisted the former finance minister in preparing the Direct Tax Code 2009, the bill underwent many changes subsequently and was not passed by Parliament. The Direct Taxes Code (DTC) Bill, 2010, which was introduced in Parliament in 2010, lapsed with the dissolution of the 15th Lok Sabha.
The Bill had proposed annual Income Tax exemption limit at Rs 2 lakh, and levying 10 percent tax on income between Rs 2 lakh and Rs 5 lakh, 20 percent on Rs 5-10 lakh and 30 percent above Rs 10 lakh. For domestic companies, it suggested tax rate of 30 per cent of business income.
The NDA government, since coming to power in 2014, has already implemented general anti-avoidance rules GAAR. In 2016, Finance Minister Arun Jaitley also promised to lower corporate tax rate to 25 percent in 5 years.
Currently, income up to Rs 2.5 lakh per annum is exempt from tax for individuals.
As reported in Republic World, terming the move as an interesting development, Sanjay Sanghvi, Partner, Khaitan & Co, said, "While the stated objective of this proposal is laudable, the present Income Tax Law in the country already contains most of the international best practices such as GAAR, transfer pricing / CBCR, BEPS and so on. It would be helpful if the new tax law emphasises more reasonable and fair administration of the tax laws to address the concerns of uncertainties and needless tax litigations. It is heartening to note that the new law will be drafted keeping in view the economic needs of the country."
Naveen Wadhwa, DGM, Taxmann.com said most of the provisions of the current Income-tax law are now settled and clear.
"Instead of changing the entire law, the government should consider modifying the existing law so that the disputable provisions and litigations could be minimised," he said to the Republic channel.
Direct Taxes Code advocated the removal of profit-linked deductions, which have already been announced under Income-tax Act.
"So, it would not be a wise decision to unsettle the settled law, especially in present environment where entities are endeavouring their best to implement India's biggest tax reform, GST in its true spirit," he added.
"A simpler code with fewer tax breaks and lower tax rates is, in theory, a good idea. The jury is, however, out on whether we need a new code or need to fine-tune the existing law," said Abhay Sharma, Partner, Shardul Amarchand Mangaldas.
"One hopes that in a hurry to push its reforms agenda, the government does not end up discarding a law that is largely settled and enriched by years of jurisprudence and replace it by a half-baked tax code," he added.
---With inputs from Republic