It’s time to simplify the direct tax laws
The income tax laws are complex in the country as over the years, the government—in order to incentivise certain sections of people, businesses and economic activities—has given several exemptions and come up with special tax rates. Despite the government’s several attempts at simplifying direct taxes, not much has been achieved in this direction. It is probably time for the government to overhaul direct tax laws like the way it did for indirect taxes with the implementation of GST. Recently, the revenue secretary, while addressing tax professionals in an event, stressed on the need to rewrite the tax laws to get rid of numerous exemptions and special treatment bestowed on select business activities or individuals.
During the UPA regime, the government had drafted the Direct Taxes Code, which attempted to remove these exemptions. But by the time the third draft was ready, much of the exemptions were back, and the Code was rendered ineffective. It’s another matter that the Code could never see the light of the day. The NDA government also tried simplification of taxes—it formed a committee as well—but no far-reaching changes could be brought in.
To its credit, the NDA government made a bold move in 2019 towards simplifying corporate taxes by lowering tax rates and phasing out exemptions. Its next attempt was at simplifying income tax laws by announcing new I-T slabs. But so far this has not made much of an impact as the old tax slabs with various exemptions continue. The new tax slabs are optional, and not many seem to be interested in shifting to this regime.
The Centre might try and disincentivise the old tax regime—of fewer slabs and several exemptions—to encourage people to move to the new one. In the meantime, the government might be working on simplifying the capital gains tax rules, bringing a more uniform definition for long-term capital gains and the tax rate on them.