We spoke to the experts on what to expect from the new direct tax law

The six-month deadline for the government’s task force to review the Income tax Act and draft a new direct tax law gets over in May. We spoke to the experts on what to expect from it

Archit Gupta, chief executive officer and co-founder, ClearTax.in

Simplifying law need of hour

An overhaul of the direct taxes is long overdue. Due to several amendments, the law has become cumbersome. Simplifying it can improve tax administration and compliance. Simplification of tax laws and compliance for non-residents and foreign companies in India must be done so that India is not deprived of its share of revenue and the government’s “Ease of doing business in India” objective is met.

The law should prescribe stringent deadlines for various appellate forums to conclude matters pending before them to relieve taxpayers.

The holding period for various capital assets vary significantly. The basis and the objectives must be aligned and holding window may be made consistent across assets to reduce taxpayer hardship in assessing impact and improve compliance.

Taxpayers are facing hardships on compliance with TDS (tax deducted at source) on property provision. Several purchase and sale transactions take place concurrently. She is devoid of the refund of TDS until the return is filed and processed. The department must offer a mechanism of early refund of TDS to taxpayers, especially to senior citizens.

Rakesh Bhargava, director, Taxmann

Limits may go up for deductions

Broadly, there are 5 expectations from the task force which are likely to be discussed in the report to be submitted shortly:

First, there is need to simplify the existing Income-tax Act. While some provisions are redundant now, others are really complex.

Second, finance minister Arun Jaitley in his budget speech said that India is a less tax compliant society. Compliances are taken earnestly if they are simple and involve less cost. Existing compliances require assistance from experts. The first category of the questionnaire released by the task force relates to filing of income tax returns, so more focus on simplifying tax compliance is likely.

Third, there are several allowances that are tax-exempt up to certain threshold limits. These threshold limits are too meagre in today’s scenario. Increasing the limits of various deductions or allowances is likely.

Fourth, the task force should propose amendments to existing provisions to end litigation on trivial issues.

Fifth, as per a report of NGO Oxfam, 1% of the richest Indian own 58% of the country’s wealth. The task force can recommend levy of additional tax on high networth individuals.

Lovaii Navlakhi, managing director and chief executive officer, International Money Matters Pvt Ltd

Lower rates to aid compliance

India has moved from being an insulated economy to a global one. There cannot be an arbitrage between two countries that are considered developed, and the same applies to tax laws. Keeping this in mind, here are the changes I expect.

Selective tax benefits: As the young population gets older, and the old live longer, the government could use the services of qualified retirement planners to allow for investments made for meeting post-work financial goals to get tax benefit.

Lower tax rates: Compliance does go up as rates go down; and clarity that these will be inflation-adjusted will give comfort to future retirees

Inheritance tax: As wealth builds, this becomes a source of revenue. Ensure the tax-free limits are reasonable, and also go up with inflation

Longer holding period for LTCG: The Indian mindset of long term is linked to holding period of assets to avail lower capital gains tax. Equity being a long-term asset must have longer duration than fixed income—not having inflation-adjusted rates is a dampener that must be corrected.

Even if not all these are implemented, a road map will provide clear direction and reduce anxiety.

Naveen Aggarwal, Partner and COO-Tax, KPMG in India

The future is digitization

With our economy geared towards certainty, simplicity and transparency and unprecedented use of technology in tax administration, the new direct tax law is anticipated to impact the following:

Technology-led compliance: Besides returns, the government may look to digitize some routine tax procedures like issuance of tax residency certificates. A robust mechanism to resolve tax-credit mismatch between taxpayers and revenue authorities should be put in place.

Effective dispute resolution: It should operationalize an effective and efficient dispute resolution mechanism to enable speedy disposal of cases.

Competitiveness: It should provide for reduction in personal and corporate tax rates (including dividend distribution tax and minimum alternate tax) to make Indian laws more contemporary and competitive.

Refunds: Enabling provisions should be made for compulsory stay of demand on issues adjudicated in favour of taxpayers, grant of interest on refund up to the date of actual issue of refund instead of date of order, and prevention of adjustment of refunds against tax demands.