Thrilled to bits with the hike in income tax limit to salaries of 12 lakh, so not bothered with the new Income Tax Bill that will replace the six-decade-old original Act? Maybe not a good idea.
While no new taxes will be imposed with the new laws, what it intends to do is to overhaul the legislation that governs tax collection — simplify it so that everyone can understand it, and make it easier to file tax returns.
But it could also just hide a sting in its tail.
Finance minister Nirmala Sitharaman had promised a brand new Income Tax Bill to replace the 1961 original one, which runs into 298 sections and 23 chapters and a total of some six lakh words. In her budget speech back in July, she ordered a six-month review of the entire bill, followed by the announcement last week that a brand new bill will be tabled in parliament.
This was followed by the Union cabinet approving it on February 7. After tabling in parliament, the bill will go to a parliamentary committee for fine-tuning, before coming back to the cabinet, followed by the people’s representatives, and then to the President for a final assent.
“The new bill is expected to simplify existing tax laws, making them more concise and accessible for taxpayers,” said Sandeep Bhalla, partner, Dhruva Advisors. He added, “It is however important to mention that tax simplification should not be seen as a one-time effort but as a continuous process that evolves with changes in the economy, technology, and global practices on one hand and the interpretation issues arising there from periodically.”
Also read
- How simplified tax policies can boost employee retention and engagement
- Unwelcome regulations, high taxes push more Indians to offshore crypto exchanges
- Ajit Pawar gets clean chit in benami property case; assets seized by IT dept released
- What is PAN 2.0? How Rs 1,435 crore project could revamp income tax payment services
Simplification in the language apart and its future passing, the mettle of the new law will be tested only in its implementation — as much as the time period government sets in enforcing the many compliances and the setting up of technical systems for screening.
The many complex provisions of the original Act, including many duplicative provisions, had made it a nightmare to manoeuvre. Its complexity also meant certain laws were interpreted by different parties in different ways, often leading to protracted litigation. In fact, a survey by KPMG with businesses had thrown up the demand that the primary focus of the new bill should be on dispute simplification.
One of the more significant asks will be how much the new provisions will accede to global taxation rules and standards. It is mighty important considering the present government’s avowed push for ease of doing business. For companies, this could just mean higher tax certainty which will help them plan finances better, lower compliance burden once the rules are explicit, and also make it easier to work with international partners (remember that pushing exports will be the only way India can get a faster growth rate).
The individual taxpayer also will have reason to cheer. There will be lesser confusion regarding how a particular clause is deciphered — something which had caused oodles of litigation earlier. Simple, clear and precise laws mean that there are much less tax disputes. Trusting the taxpayer, as the minister herself said in her budget speech on Feb 1, will be the guiding light. This also means easier self-assessment and easier tax filing.
But don’t think the government is going to leave the trapdoor open in its efforts to simplify taxes and facilitate ease of doing business. Along with ease of doing business, one of the prime ulterior motives of the new law will be to increase the tax base.
How, you might think, considering that even more people will be OUT of the tax net with the budget raising income tax limits from 7 lakh to 12 lakh.
Now, that is where the many new technologies and improvisations of the recent past are going to bear fruit for Sitharaman and co, and make up for the lost revenue due to raising tax limits.
Over the past several years, the financial system in general and the tax department in particular have been on a digital overdrive — right from the GST and UPI implementation that we all know, to the many new software and AI tools to crunch transactions and detect swindles and scams that have been brought into use but are not as publicly known. The objective is the same — widen the tax base by bringing in more and more citizens and more and more transactions under the tax net. This sting in the tail, if implemented effectively, could just mean a windfall for the overall Indian economy in the long run, though.
