Simplification, transparency, and ease of compliance have been the focus areas in taxation of the Narendra Modi government, since 2014. In the first 100-days of its present tenure, the government has stuck to this concept through targeted reforms, say experts. Among the notable initiatives in first 100-days are the rejig of the capital gains tax structure, tweaks in the personal income tax slabs (in the new regime), introduction of measures to reduce litigation, setting up a committee to review the Income Tax Act, and showing an intent to rationalise the GST structure without any further delay.
The Group of Ministers (GoM), of the GST Council, under the leadership of Bihar’s Deputy CM Samrat Chaudhary is currently looking at the possibility of rejigging rates of several items which are of the same kind, and tweaking the four-slabs structure.
Finance Minister Nirmala Sitharaman during her Budget speech, on July 23, had made a slew of announcements on tax policy, and mentioned that taxpayers are opting for a simpler and transparent tax system. Over 72% of taxpayers opted for the new income tax regime in 2023-24, and more are seen joining the bandwagon.
However, the issue of intrusive tax administration is still alive, with the latest instances being the hefty GST notices issued to IT firms including Infosys. The GST department later clarified on this, indicating the tax liability in these cases could turn out to be nil.
One key Budget announcement pertaining to removing indexation benefit for all asset classes on capital gains taxation was reinstated for the real-estate sector (in the amendment to Finance Bill). This was done as many industry experts said that the removal would’ve increased the tax liability substantially for the middle class.
Ayush Mehrotra, partner, Khaitan & Co said that the recent amendments made to the tax laws reflect the government’s intent to facilitate trade and ease the burden on common man. “This is evident from the rate rationalisation, the amnesty scheme and the clarification issued regarding the cross-border transaction among related entities,” he added.
The government’s intent to rationalise the tax framework and encourage quicker resolutions through technology-driven processes will likely improve ease of compliance, reduce business costs, and bring greater predictability for taxpayers, said experts.
That said, going forward, the government should prioritise addressing the complexities in the capital gains tax regime, expand efforts to curb tax evasion through digital tools and ensure more robust relief for middle-income groups, said Prateek Bansal, partner-taxation, White & Brief.
“A focused push on international taxation and transfer pricing mechanisms could further strengthen India’s global economic positioning while ensuring domestic taxpayers benefit from a more efficient, transparent system,” he added.
Last month, Sitharaman had said that the Income Tax Department will have “a lot to contribute” in terms of negotiations regarding the two-pillar tax package–currently undergoing with other countries; and be ready for the execution of the same, once the negotiations are concluded.
Pillar 1 and Pillar 2 tax packages are part of the Organisation for Economic Co-operation and Development (OECD) GLoBE rules. Pillar 1 is focused on the reallocation of (a portion of) the consolidated profit of a multinational enterprise to jurisdictions where sales arise; and Pillar 2 introduces a global minimum effective tax rate of 15 % for the MNEs.
