The Indian government has instituted a panel to make the country’s 57-year old income tax law ‘more comprehensible’

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(Image source: Reuters)

  • The government has formed a task force led by Akhilesh Ranjan, the head of the Central Board of Direct Taxes, to review the Income Tax Act of 1961.
  • The goal of the taskforce, according to Ranjan, is to make India’s income tax law “more comprehensible” by removing extraneous provisions and ambiguities and simplifying the language.
  • The Income Tax Department has received 60.8 million direct tax returns in the year so far, which is 50% more than what was received at the same time last year.
Last week, it came to light that the Modi administration had commenced a plan to revise India’s income tax laws by instituting a task force led by Akhilesh Ranjan, the head of the Central Board of Direct Taxes, to review the Income Tax Act of 1961. At the time, buzz circulated that the move would entail a change in tax rates and possibly, a reduction in corporate taxes.

Speaking at a conference yesterday, Ranjan explained that the goal of the taskforce was to make India’s income tax laws “more comprehensible” by removing extraneous provisions and ambiguities and simplifying the language.

He said that the mandate of the taskforce does not include changes to tax rates or new taxation policies and that the end product would be a cleaner, clearer income tax law. In doing so, he dispelled speculation that the new tax law would entail higher rates for top earners and relief for low earners.

The news comes as the government’s direct tax submissions are surging. The Income Tax Department has received 60.8 million returns in the year so far, which is 50% more than what was received at the same time last year, according to the Press Trust of India.

The taskforce is expected to submitted its redrafted version of the tax law by the end of February 2019. It will likely be an important part of the Modi government’s platform as campaigning for general elections gets underway. Given the complexity of direct tax laws, however, it will be while before revisions to the existing legislation are rubber-stamped.

In addition to a simpler income tax law, the CBDT is working on a plan to provide pre-filled forms to people filing their taxes. Under the proposal, officials in the Income Tax Department will use data from previous forms or data available from companies and banks as they deduct tax at source to achieve this. This will make the process of filing returns much faster.

Ranjan also shot down the possibility of a reduction in corporate taxation rates, citing the negative implication of a hit to government revenues. He did however, say that a reduction would only make sense once stronger compliance protocols and measures to prevent tax evasion by corporations were implemented and the tax base was widened.

In his Budget speech for 2015-16, Finance Minister Arun Jaitley had promised a reduction in the corporate taxation rate from 30% to 25% within four years. However, after presenting the Union Budget earlier this year, in February, Jaitley explained that this would only happen once tax exemptions and concessions given to certain industries were done away with.

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