Column : You pay it, but do you know it?

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: Indian tax law read with its rules, as they stand today, can be quite laborious to understand. With each passing year, their complexity has increased and so has the need for a simplification and collation into a new tax code. Finally, Budget 2009 announced the introduction of the much awaited tax code. As per current scheme of things, the draft of the code would be released for public comments in the next 45 days and would be finalised after discussion in

Parliament.

The Income Tax Act, 1961 (“Act”) has a whole gamut of interwoven sections, subsections, clauses, sub clauses and apparently never-ending provisos and explanations. For the first time in 2005, then Finance Minister P. Chidambaram announced his intention to introduce a much simplified and revamped Act. Since then, everyone has been eagerly awaiting the new tax code to see the light of day, but no official information had been received— until Budget 2009.

There is no dearth of issues and provisions in the Act, which call for simplification and easy application. The Act, in its current shape, appears to be a compilation of complex tax provisions often subject to varied interpretations, and normally clarified through amendments, notifications or circulars issued by Central Board of Direct Taxes (CBDT). Complex language used in tax provisions has led to different interpretations and consequently to excessive litigation. While, the plethora of amendments has been brought in since 1961 with intent to clarify the existing issues, it resulted in creating a host of other issues. Simplifying the provisions and overall rationalisation of the Act will significantly reduce litigation and the workload of appellate authorities.

Tax exemptions, as indicated by the FM in his budget speech, are substantially eroding the tax base and are, hence, among the reasons for the prevailing high corporate tax rate. The FM assigns an inverse proportion of tax base to tax rate, “If the tax base is higher, the tax rates can be lower”. Over the years, Governments have introduced various beneficial provisions in the Act. While, the intent of introducing such provisions was always to boost specific sector/activity/investment, one cannot deny that such tax holidays, apparently are the most litigated upon issues.