NEW DELHI: Ahead of pre-budget consultations, experts suggest various changes in the Income Tax Act to make it simpler and minimize disputes.
According to sources, a recent stakeholder consultation meeting chaired by Revenue Secretary Sanjay Malhotra brought together government officials and tax experts to discuss potential changes to the income tax law. Finance Minister Nirmala Sitharaman in Budget this year had announced the formation of a committee for review of the Income Tax Act.
One of the key changes tax experts suggest is the need to revamp the TDS (Tax Deducted at Source) and TCS (Tax Collected at Source) provisions.
According to Vivek Jalan, Partner at Tax Connect Advisory Services LLP, there are over 120 provisions related to TDS/TCS in the Income tax Act, and the complexity arising from these numerous provisions creates confusion and increases litigation.
He suggests a simplified rate structure similar to GST. He advises categorizing TDS rates into five distinct brackets—0.1%, 1%, 2%, 5%, and 10%. Amit Rana, tax partner, PwC India, highlights the need to prevent proliferating disputes between taxpayers and the tax department.
He advocates establishment of a mediation or arbitration process, wherein an independent third party could objectively resolve disagreements. Rana bats for a robust advance ruling process that is both efficient and objective.
To ensure impartiality, he suggests involving independent officers, such as retired judges, to issue rulings in a timely manner. “...to increase accountability of the tax department, the interest rate on refunds to taxpayers should be raised to 12%. This may put a check on any arbitrary action such as high-pitched assessment,” Rana stated.
One of the key suggestions put forth by experts is the need for a mechanism within the Income Tax Act, 1961,to address tax proceedings involving 'corporate debtors' that occur prior to the approval of their resolution plan under the Insolvency and Bankruptcy Code (IBC), 2016.
Currently, the tax department continues to initiate or persist with tax proceedings for the pre-IBC period, despite clear provisions in the IBC and various judicial rulings stating that no such actions should be undertaken. To rectify this situation, Sanjay Sanghvi, Partner at Khaitan & Co advocate for the introduction of specific provisions within the Income Tax Act that would explicitly prohibit the initiation of tax proceedings for the pre-IBC period and allow for the dismissal of any ongoing proceedings against corporate debtors who have undergone the Corporate Insolvency Resolution Process.
"Secondly, the current turnover (ie INR 60 lakhs) and asset threshold (ie INR 5 crores) provided under section 47(xiiib) of the IT Act for a tax neutral conversion of a private limited company into LLP are at a lower level including for entities engaged in MSME sectors and thus the same warrants a revision. Hence, government should consider enhancing such thresholds further so that more companies can take benefit of this provision," added Sanghavi.