Income Tax 28 Jan,2020
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Union Budget 2020 - Tax Reform Committees Recommendations
PRABHAKAR K.S.Proprietor, Shree Tax Chambers

If the Lord loveth a cheerful giver, how he must hate the taxpayer!!

John Andrew Holme

1. Introduction

India's six decades old Income Tax Law or Income Tax Act, 1961 is likely to set for an overhaul. During November 2017, the Central Government has set up an eight-member task force of experts to draft modern tax law. India's Income Tax law has more than 150 years of history. The first Income Tax Law was introduced in the year of 1860 to overcome financial stress caused by 1857's mutiny but that was in force for a little period of five years. In 1867, the afore-said law was revived as 'License Tax' to levy tax on the trade and professions. Again, in 1868, the Legislature replaced the 1867 Act with 'Certificate Tax'. As now in practice, under both the statutes, the agricultural income was excluded or exempted fully. In 1877, the 'Licence Tax' with 'Cess on land' was been introduced. During the same period, local Acts in the erstwhile Presidencies - Madras, Bombay & Bengal - were introduced. Thereafter, but before the Current Act of 1961, three more Acts including one thoroughly amended Act has been introduced, namely, "The Indian Income-tax Act, 1918, The Indian Income-tax Act, 1922 and The Indian Income-tax (Amendment) Act 1939". Following lines deals with Sri. Arbind Modi (though Central Government did not consider its Report) and Sri. Akhilesh Ranjan Panels' recommendations.

2. Efforts In The Making of

During the 'Rajaswa Gyan Sangam', an annual conference of senior officials of the Central Board of Direct Taxes (CBDT) and the Central Board of Indirect Taxes and Customs (CBIC), held on 01.09.2017, the Hon'ble Prime Minister has opined the necessity of redrafting of Income Tax law. Accordingly, in November 2017, to review and draft a new Direct Tax Law in consonance with the economic needs of the country, the Central Government has constituted the task force headed by Sri. Arbind Modi as its convener and CA Dr. Girish Ahuja, Sri Rajiv Memani, Sri Mukesh Patel, Sri GC Srivastava, IRS (Retd.), Smt. Mansi Kedia and Sri. Arvind Subramanian was as its members. On 26.11.2018, the Central Government has partially modified the task force by replacing its convener by appointing Sri. Akhilesh Ranjan, CBDT Member (Legislation) and Sri. Ritvik Pandey as a Member. The Terms of Reference of the Task Force was as under -

  •  Study of DT System In various countries..

  •  Prevailing International best practices..

  •  Economic needs of the country..

  •  Faceless & anonymised Verification /Scrutiny/Assessment.

  •  Reduction in Litigation & Expeditious Disposal of appeals..

  •  Reduction of compliance Burden - Simplified Procedures

  •  Sharing of Info b/w. CBDT / CUSTOMS / GST / FIU.

  •  Any other matter connected thereto.

In that direction, the Task Force, on 21.03.2018, sought feedback and suggestions from stakeholders and the general public in the form of a questionnaire. Suggestion and feedbacks sought on

  •  Filing of income tax returns

  •  Grant of tax credits

  •  Processing/scrutiny of returns

  •  Litigation and recovery of disputed tax demand

  •  Penalties and prosecution among others.

Accordingly, the task force headed by Sri. Akhilesh Ranjan has submitted its 'Report - In 2 Volumes' to the Hon'ble Finance Minister on 19.08.2019. However, the government is yet to make the Report public. Prior to the submission of the aforesaid Report, Sri Arbind Modi headed panel was also submitted its 'Detailed Report in 4 volumes'.

3. Sri. Arbind Modi Panel's Recommendations - Highlights1 (Strictly for academic purpose)

 1.  Exclusion of those incomes derived from a source outside India from the ambit of total income of an assessee or person.

 2.  Those incomes / payments may be construed as derived from outside India, if source was outside India.

 3.  Those incomes / payments may be construed as derived from within India, if source was inside of India with adequate safeguards to prevent abuse.

 4.  May do away with distinction between Resident and Non-resident.

 5.  Tax Deduction Provision (TDS) on every payment made by a person, including Government, exempted person from India to any person outside India.

 6.  Equality in TDS Rate and Corporate Tax Rate.

 7.  Allowing of cash system of accounting for computing the total income.

 8.  May do away with the distinction between capital & revenue and receipt & expenditure.

 9.  May do away with the distinction between debt and equity capital.

10.  Allowing of full capital expenditure in the year it was actually incurred.

11.  Allowing of full deduction for payment of interest and dividend.

12.  An assessee's total income may include cash inflow, whether capital or revenue, from operational, financing and investment activities. However, exclude cash outflow, whether capital or revenue, in the course of operational, financing and investment activities.

13.  Two models of tax rate structure were mooted as :

First model - A Two - rate structure

Threshold Basic Exemption limit of Rs. 6 lakhs - Nil

Income between Rs. 6 lakhs and Rs. 20 lakhs - 15 percent

Income above Rs. 20 lakhs - 30 percent.

Second model - A four rate structure

Basic threshold exemption limit - Rs. 2.5 lakhs

Income between Rs. 2.5 lakhs and Rs. 5 lakhs - 5 percent

Income between Rs. 5 lakh to Rs.10 lakhs - 10 percent,

Income between Rs.10 lakh to Rs. 30 lakhs - 20 percent

Income above Rs. 30 lakhs - 30 percent.

However, the panel did not recommend removing any of the existing deductions provisions.

14.  A deduction upto 10 percent of gross total income or salary to allow such contributions to the National Pension System (NPS).

15.  Reduction in the corporate tax rates to 5 percent in the case of financial companies & power producing companies and 15 percent in the case of all other companies with the abolition of Minimum Alternate Tax (MAT).

16.  Continuation of levying of Surcharge with the existing rates in the case of personal income tax and standard rate at 10 percent on all corporate incomes.

17.  May do away with 'foreign companies' concept by treating them at par with domestic companies.

18.  For effective Tax Administration -

  •  Introduction of E-assessment based on functional specialization with fully paperless and faceless to enhance efficiency, effectiveness and accountability.

  •  Dispute Resolution Mechanism by creating a Directorate for Public Rulings to issue pre-assessment clarifications to prevent litigation.

  •  In the case of Search & Seizure matters - a fast track mechanism by establishing an in house adjudicating authority to settle such cases.

  •  Abolition of the Settlement Commission.

4. Sri. Akhilesh Ranjan Panel's Recommendations - Highlights2

 1.  Abolition of Dividend Distribution Tax (DDT).

 2.  Reduced 25% tax rates for all corporates.

 3.  New Tax slab rates

Income between Rs. 2.5 and Rs. 10 lacs - 10 percent (with a full rebate upto Rs. 5 lacs)

Income between Rs. 10 and Rs. 20 lacs - 20 percent

Income between Rs. 20 lacs and 2 cr - 30 percent

Income above Rs. 2 crore - 35 percent3.

 4.  Changes in Residence Rule - 180 days to 90 days.

 5.  Litigation management unit to manage tax litigation process.

 6.  Restructuring of MAT provisions.

 7.  Abolish tax on long-term capital gain arising from transfer of listed securities.

 8.  No to reintroduction of inheritance tax.

 9.  Transfer pricing assessment would be carried out by a separate functional unit

10.  A Panel of Mediators for settlement of the tax disputes.

5. Standing Committee on Finance (2019-20) Recommendations4 - Highlights

  1.  To broaden tax base - Should introduce the new Direct Tax Code (DTC)

  2.  Undisputed or uncollected Tax - Should be legally recovered by giving utmost priority in a stipulated time-frame backed by a concrete action plan.

  3.  Tax Litigation - Departmental Appeals should be filed judiciously after weighing all the pros and cons and not as a matter of routine.

6. Concluding Remarks

It is appropriate to recall Sri. Nani Palkhivala, the greatest jurist and economist's precious words on taxing statutes, "the tax laws, like all other laws, to be respected, must be made respectable. Revenues rise with tax cuts, when income tax is scaled up, income is scaled down. If there is widespread tax evasion, it may be more meaningful to search for the cause in the tax system than in the taxpayer".

In addition to the latest Panel's Report, three more works on simplifying of Tax law, such as Report of Tax Administration Reforms Commission (TARC), Dr. Parthasarathi Shome Committee and Justice R V Easwar (Retd.) Committee will come in handy while formulating the new income tax law or bringing suitable amendments to the existing one.

As far as 'Tax Rate cuts' concerned, whether southward economy, fiscal restraints, and more importantly, the shortfall in direct tax collections for the financial year 2019-20, allows Hon'ble Finance Minister to think about reduction in individual tax rates front ?!

Kindly wait till 1st February, 2020 at 11.00 a.m. to know..!!

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 1.  Report on Income Tax Reforms for building a new India, September, 2018

 2.  New Income-tax Bill: Key recommendations in Task Force's Report - Taxmann August 20,2019

 3.  5 fundamental changes to Income Tax Code recommended by DTC Task Force Report - Taxsutra Jan 15, 2020

 4.  STANDING COMMITTEE ON FINANCE (2019-20) December 2019