Task force has submitted draft law to the government containing various recommendations for the purpose of replacing the Income Tax Act with Direct Tax Code, However, the government is unlikely to replace the Income Tax Act with the direct tax code but will only incorporate select suggestions from the draft law to avoid creating more uncertainty for businesses amid an economic slowdown.
Replacing the current law is not yet favorable to the government now as this would involve unsettling well-established jurisprudence, which could create uncertainty for businesses that are grappling with a deep economic downturn.
Some suggestions in the draft law will be incorporated in Income Tax Act through amendments in the next Budget session of Parliament. Although, the report of the expert panel is yet to be made available to the public by the Finance Ministry.
This will make the law modern and capable of dealing with new business models by incorporating global best practices without creating any uncertainty among businesses.
The panel has proposed significant relief for taxpayers, including an across-the-board 25% tax rate for both local and foreign companies, and changes in personal income tax slabs.
Besides, a lot of sub-rules, exemptions, and carve-outs included in the law that have arguably made the Act complex is meant to take care of specific needs of industries and sections of people.
Added “If the law is made too simple, it may become inequitable too,” said the person. “Besides, even if you make the law simple, it will not stay so for long in a dynamic economy,” added the person.
The Manmohan Singh-led government had tried to introduce a new direct tax code at the beginning of this decade, but eventually, almost all of its proposals including the General Anti Avoidance Rules were incorporated in the Income Tax Act itself.
The suggestions made by the panel regarding the change in slab rates have been a continuous process, executed through annual Finance Acts. The second Finance Act of 2019 passed as part of the full budget for the current fiscal has already taken forward the Modi administration’s agenda of making taxation more progressive, with the tax incidence going up with rising income levels.