Tax laws

Tax laws made complicated by exemptions need to be simplified: Tarun Bajaj


There is a need to simplify the direct tax laws as various exclusions or exemptions announced each year have complicated them, said Revenue Secretary Tarun Bajaj.

“The direct tax code has also become more complicated, a lot of exemptions, a lot of provisions have come in so I think there needs to be a complete overhaul of these exclusions that we do every year, that makes it very complicated to understand even for tax experts, what ordinary people talk about,” Bajaj said during a webinar hosted by the Bengal Chamber of Commerce and Industry (BCCI).



The government wanted a stable and predictable tax system, so very few changes were made to the Union budget. “Only one or two exemptions in the new corporate tax system have brought some stability, and the business sector has embraced this new structure,”

Bajaj said that based on the analysis for 2019-20 and the 2020-21 assessment year, 65% of business income fell into the new 22% tax bracket, while the 35% remaining continue to benefit from the old tax regime as a business. the income is low and can benefit from an exemption.

However, there is a sunset clause for the exemption, and with the sunset, more businesses will benefit from the new tax regime, Bajaj said. With the reduction in corporate tax rates, tax revenue has increased, he added.

In September 2019, Finance Minister Nirmala Sitharaman announced a corporate tax reduction from 30% to 22% if companies do not benefit from any exemptions or incentives.

On the personal income tax front, the new personal income tax system is “not well designed,” Bajaj said. Up to around Rs 8-9 lakh annual income, there is no reason to avail the new tax scheme because under the old scheme, by availing the exemptions, there is no liability to tax. tax for an individual. However, if the person avails himself of the new income tax regime, he will have to pay taxes, Bajaj said.

“That work is ongoing. We will have more data to analyze, and I think if we fixed that, we would go in the right direction,” he said. Second, very few people pay taxes on the income, Bajaj said.

With the government providing pre-populated data in tax returns, it is expected that taxes will be better collected from taxpayers who did not pay taxes earlier. A new provision has been added in this regard which states that if taxpayers whose TDS is Rs 50,000 but do not file a return, their TDS liability would double. Bajaj also said the government has come a long way from taxing people based on their tax returns to transaction-based taxation. The government collects approximately 55% of taxes through TDS.

Bajaj also said that if tax revenue continues to grow as it appears to be showing in corporate results, the Center’s budget deficit may see a reduction of 0.1% or 0.2% of the revised budget deficit for a current fiscal year. by 6.9%.

For next year, the budget deficit target is 6.4%, and the government has had the opportunity to reduce it further. “But the increase in capital expenditure of almost 35% forced us to maintain the budget level at this level,” he added.

Bajaj said that since last year, the Center has started giving funds to states for capital expenditures. If this is not done, last mile infrastructure will not happen, he added.

“The government’s intention is to maintain GDP growth. Then only revenue and revenue will be better,” he said.

On indirect taxes, the government has undertaken a thorough review of customs duties, and some exemptions that have continued for three decades but are not helpful have been removed, Bajaj said.

For the Production Linked Incentive Scheme and the Staged Manufacturing Scheme, the government has given a four-year sliding trajectory that some protection will be provided for one to two years, but then businesses will need to be competitive.

Bajaj also said that with the government’s resolve to end litigation, the center will settle the 14 to 15 cases this month through the retroactive tax repeal legislation. The demand in these cases was around 1.1 trillion rupees.