New Income Tax law simplify tax slabs, lower total amount paid as income tax
The central government's decision to set up a seven-member committee to overhaul Direct Tax Code (DTC) - shelved by Finance Minister Arun Jaitley in 2015 citing "most provisions were either incorporated or done away with" - may simplify the taxation slabs and reduce rates. The final DTC would also likely benefit the tax payers by increasing the exemption limit to Rs 5 lakh. Though the taxable amount may go up due to removal of all or most of the exemptions, the reduced tax rates are expected to actually bring down the total amount paid as income tax.
The direct taxes have been in force in the country since 1961. The latest decision comes close on the heels of comments made by Prime Minister Narendra Modi during the annual conference of tax officers in September that the Income-tax Act, 1961, was drafted more than 50 years ago and it needed 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 on the formation of the new task force.
The task force is headed by Arbind Modi, Member (legislation), CBDT. Arvind Subramanian, Chief Economic Adviser, will be a permanent special invitee in the Task Force. Other members of the of the task force include Girish Ahuja, practicing chartered accountant and non-official Director of State Bank of India; Rajiv Memani, Chairman & Regional Managing Partner of E&Y; Mukesh Patel, Practicing Tax Advocate, Ahmedabad; Mansi Kedia, Consultant, ICRIER, and G C Srivastava, retired IRS (1971 Batch) and Advocate.
The task force would draft 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. The task force would submit its report to the government within six months.
The Modi government, since assuming power in 2014, has already implemented general anti-avoidance rules GAAR. Finance Minister Arun Jaitley also promised in 2016 to lower corporate tax rate to 25 per cent during the course of 5 years. As of now, individual taxpayers with an annual income up to Rs 2.5 lakh are exempt from paying income tax.
This would not be the first attempt to change the Income Tax Act in the country. Back in 2009, the incumbent UPA government had come up with the Direct Tax Code to make tax legislations easier to comprehend for individual as well as corporate taxpayers. Later the Direct Taxes Code (DTC) Bill was tabled before the Parliament back in 2010. The Bill had suggested that annual income up to Rs 2 lakh should be exempted from income tax. Apart from this, the DTC Bill proposed levying 10 per cent income tax on annual income between Rs 2 lakh and Rs 5 lakh, 20 per cent on annual income from Rs 5-10 lakh.
The Bill mandated that 30 per cent income tax should be levied from taxpayers with annual income above Rs 10 lakh. Similarly, it suggested that domestic companies should pay income tax at a rate of 30 per cent of their business income. The DTC Bill, however, lapsed with the dissolution of the 15th Lok Sabha.
(With PTI inputs)