Income tax laws are complex in the country because over the years the government – in order to induce certain categories of people, companies and economic activities – has granted several exemptions and proposed tax rates. special taxation. Despite the government’s many attempts to simplify direct taxes, little has been done in this direction. It is probably time for the government to revise the laws on direct taxes as it did for indirect taxes with the introduction of the GST. Recently, the Tax Secretary, while addressing tax professionals at an event, highlighted the need to rewrite tax laws to get rid of many exemptions and special treatments given to certain business activities or individuals.
Under the UPA regime, the government drafted the Direct Tax Code, which attempted to remove these exemptions. But by the time the third draft was ready, most of the exemptions were back and the Code had become ineffective. This is another matter that the Code could never see the light of day. The NDA government also tried to simplify taxes – it also formed a committee – but no far-reaching changes could be made.
To its credit, the NDA government took a bold step in 2019 towards simplifying corporate tax by lowering tax rates and phasing out exemptions. His next attempt was to simplify income tax laws by announcing new computer tiles. But so far this has not had much impact as the old tax slabs with various exemptions continue. The new tax brackets are optional and few people seem interested in switching to this regime.
The Center could try to discourage the old tax system – made up of fewer brackets and more exemptions – to encourage people to switch to the new one. In the meantime, the government could work to simplify the rules for taxing capital gains, providing a more uniform definition of long-term capital gains and the tax rate on them.