Reforming the Income-Tax Act

The tax system of a country needs to be tailored in accordance with the state of society, economic composition of taxpayer groups, stability and efficiency.

- TN Pandey

IN an era of voluntary compliance under the Income Tax Act, 1961, where nearly 99 per cent of income tax returns are being accepted without any scrutiny, the tax law has to be simple, easily understandable and concise for compliance regarding disclosure of incomes and payment of tax. For this, the tax law, rules and returns, to be filed, need to have the above stated attributes. But, successive governments, including the present one, do not seem to believe in this thinking. Each year’s Finance Act add, modify and replace the sections of the IT Act in a big way as could be seen from the following numbers of clauses in the Finance Bills for the last four years (see table).

Besides the changes in law, substantial changes each year are made in the IT Rules also, whose number too has grown large with so many annual changes.

The IT Act was enacted in the year 1961 with 298 sections. It had, on March 31, 2016, 745 sections though the number shown in the IT Act continues to be 298. If the changes made by the 2017 Finance Act are also considered, the number will go above 800! The growth is made by adding alphabets to the main section such as ‘QQA’ (in section 80), HHBA in section 80 and BBDA in section 115, etc.

The efforts towards simplification got blunted because of the personal ego of the UPA Finance Minister, Shri Chidambaram, who, instead of entrusting the work to an expert body, like Law Commission (the 1961 Act was drafted on the basis of the recommendations of this Commission) or to a specially constituted Commission for this purpose, headed by a Judge of the High Court or Supreme Court, with members from various disciplines, like law, accounts, economics, tax policies, decided to get the Direct Taxes Code (DTC) drafted under his supervision by an In-house Committee of Tax Officers.This was a fatal decision.