Prime Minister Narendra Modi may not deposit Rs 2 lakh into each Indian's bank account in the manner he wanted to as he promised during the 2014 general election campaigns, but many Indians may benefit by a reduction in income taxes they will pay next year.
Gung-ho with the roll-out of the Goods and Services Tax (GST) in July 2017, the government appointed a task force in November 2017 to draft a new direct tax law, and gave it six months to submit its report. The mandate was to consolidate and simplify the existing laws into a single legislation.
While the task force convener Arbind Modi, Member (Legislation) of the central board of Direct Taxes, may not do so on May 22, the day the task force completes six months, sources say the seven-member committee will likely draft the new direct taxes law such that the government can consider it during the monsoon session of Parliament.
Sources say the income tax slabs may be restructured to bring many from the 30 per cent to the 20 per cent slab, and similarly, bring many people to the lowest slab. “The idea will be to give the benefit of reduced taxes to many, without the government losing out on revenue. Since there has been a substantial rise in the number of tax payers post the demonetisation and the GST roll-out, it could be time to reward them,” commented a source in the RBI.
Why such a rationale sounds logical is because of the fact that Lok Sabha 2019 is the perfect time for the prime minister to fulfill a promise he made—to make every Indian rich with the black money that he would bring home. Reduced tax would mean more money to spend.
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In fact the task force was set up after Prime Minister Narendra Modi, in the course of a Rajaswa Gyan Sangam, maintained that the Income Tax Act of 1961 was drafted more than 50 years ago, and said it needed to be redrafted. The finance ministry felt that a new Direct Tax Law was necessary so that “the tax system is in consonance with the economic needs of the country”.
Arbind Modi and his team mates were directed to study the system prevalent in various countries, and bring in the best international practices while keeping in mind the economic needs of the country.
Incidentally, Arbind Modi was the author of the Direct Tax Code proposed by the UPA I government under Dr Manmohan Singh, which invited public comments on the draft bill in August 2009. The Direct Tax Code 2010 was introduced in Parliament next August, and a Standing Committee on Finance (SCF) was formed. The SCF submitted its report to Parliament in March 2012.
Apart from tinkering with slabs of individual income tax, the bill proposed corporate tax of 30 per cent, removal of several deductions allowed for companies, removal of distinction between short-term and long-term for capital gains, increased wealth tax exemption limit from Rs 15 lakh to Rs 1 crore, and introduced the General Anti-Avoidance Rules (GAAR).
But the bill lapsed when the 15th Lok Sabha term ended, and Finance Minister Arun Jaitley committed himself to reducing corporate tax to 25 per cent. While in his second budget, he brought it down to 25 per cent for companies with an annual turnover of up to Rs 50 crore, in the last budget, Jaitley covered companies with a turnover of up to Rs 250 crore. According to him, with that 99 per cent of Indian companies had got the benefit of 25 per cent corporate tax.
The announcements with regard to individual income tax, however, have not counted for much so far. The new direct tax code is expected to target the direct tax payers.