New Delhi, Sept. 8: The government plans to have a simpler tax law from 2008-09 that will ease payment procedures and strengthen evasion norms.
A panel comprising officials of the CBDT today submitted its ‘Report on Simplification of Income Tax Act, 1961’ to finance minister P. Chidambaram. The report among other things is on simplifying tax procedures, scaling down exemptions and fully implementing the exempt, exempt, tax (EET) norms.
The changes will, however, take place only from 2008 after approvals from the cabinet and Parliament.
“Hopefully, if everything goes well, we will have a brand new tax law by April 2008, subject to Parliament approving it well in time,” Chidambaram said. “It is not intended to amend the existing income tax act.”
The government wants to table the new taxation bill this fiscal for debate in Parliament and subsequent passage before April 2008.
The government wants more people under the tax net and to plug loopholes to help cut a yawning fiscal deficit that was 4.1 per cent of the GDP last year and projected to be little less than 4 per cent this year. Only 3 per cent of the total population pay taxes now.
The report said the laws on income tax, wealth tax and fringe benefit tax should be combined under a proposed “direct taxes code bill”.
It suggests simpler language and removing redundant provisions and inconsistencies from the law books.
However, the details of its recommendations were not made public.
The report replaces the terms “previous year” and “assessment year” with “financial year”.
The report was prepared by CBDT officials after Chidambaram, in the budget for 2005-06, said the income tax act would be simplified and a new bill introduced in Parliament.
Sources said several exemptions available to charities, educational institutions and others would end.
Government officials said the target was higher collections and greater coverage by implementing a tax code that will leverage the advances made in information technology such as data mining.
The government is likely to impose differential taxes on savings, when they are withdrawn under a planned EET regime, depending on the lock-in period of the saving.
Officials said investments in tax saving instruments for a period of at least a decade, such as pension funds, provident funds or long term infrastructure bonds, will attract a lower rate on a par with the lowest tax slab.
The difference is to induce people to save longer. Long- term investments are channelled into infrastructure which fits with the government’s plans to shovel more funds into the core sector.
Only new savings and fresh investments in recurring savings, such as provident fund and pension, will be taxed at the time of withdrawal. Older investments made before the law is passed will remain exempt.