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Income tax Act set to go jargon-free
July, 31st 2006

Taxpayers may well be able to comprehend income tax legislation in one reading. The expert group, set up to rewrite income tax legislation, has decided to do away with the provisos and explanations in the Act and weed out redundant provisions. The redrafting could also usher in some policy changes.

A proviso normally refers to the exceptions in a particular section in the legislation. In a sense, it restricts the scope of the section. An explanation, on the other hand, clarifies the scope of a particular section in the legislation.

The expert group is of the view that provisos and explanations need to be scrapped to the extent possible as lay taxpayers find them tough to comprehend. The attempt will be to make the main section clear, without the explanations or provisos. All the provisions will be made simple, shorter and easier to understand.

For instance, the section, say on fringe benefits (Section 115 WB) defines these benefits and lists out various categories of expenses which will attract the levy. The section has a proviso, listing out some of the expenses that will be excluded while calculating the levy. The section could be redrafted in a way that will take care of these exceptions, without making the law cumbersome.

There could be a few policy changes as well in the course of re-writing the Act. Although the expert group has been mandated to rewrite the Act in simple langauge without changing the law, a few policy changes may be unavoidable in the course of re-drafting, said a top government source.

At the same time, the group has also been asked to separately recommend policy changes that are necessary. Various sub-groups have forwarded their recommendations on big-ticket policy changes that the core committee could consider. The expert group is headed by MH Kherawala, chairman, Central Board of Direct Taxes. Sources said that the draft income tax bill will be submitted within the next few days.

The existing Act has 700-odd sections, going by the numbering of each section. These sections will be reorganised scientifically and similar provisions will be regrouped to give it a more logical structure.
The redrafted legislation will reduce ambiguities in the provisions, thereby minimising the scope for different interpretations by courts.

A similar exercise of simplifying the Income Tax Act was taken up in the past by P Chidambaram as finance minister of the United Front government. The expert group is understood to have incorporated some of the changes proposed in the 1997 draft bill.

It has also looked at old acts such as the IPC, Indian Evidence Act and other modern legislation in the UK such as Competition Act, Financial Services and Markets Act and so on. The draft bill will be vetted by the law ministry.

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