Centre drafting simpler direct tax rules to improve compliance

The Narendra Modi-led government is working on an overhaul of the country's archaic tax rules to ensure that tax compliance is easy and dispute redressal quicker.

The new law would simplify the rules that govern direct taxation in India as part of the government's efforts to motivate taxpayers to comply and thereby improve tax collections.

Among other changes the proposals could include doing away with the need for filing multiple returns and options of faster redressal in case of a dispute.

The draft rules are expected to be ready as early as the first half of next year.

India's direct tax collections for the year ended March 2017 have hit the lowest levels since 2010, with around 63 per cent of the country's annual budgeted revenue locked in litigation for the complex maze of tax rules and their varying interpretations.

The existing tax rules that date back to 1961 have so many loopholes that they give rise to more disputes than compliance while also making dispute redressal complicated.

A Bloomberg report citing people familiar with the matter said the draft proposals in this regard will probably be ready by early 2018 for stakeholder comments.

Reports say an estimated Rs10,00,000 crore in tax revenue is currently locked in litigation due to complex tax rules, which make non-compliance easier. Also, loopholes in the rules have kept about 99 per cent of the population outside the income tax net.

The government is also trying to obviate the need for tax officials to physically ensure tax compliance by replacing door-to-door enquiries with online enquiries. The law in the making could also enable tax payers to file disputes or appeals online instead of repeated rounds to the government, according to the Bloomberg report.

The proposed new set of rules will also provide clarity on penalties for failing to furnish tax returns, comply with notices or concealment of income, it said, adding that the processes that make compliance difficult would also be simplified.

Global funds that pay withholding tax on investments should be able to get by with just one payment receipt, rather than having to file a separate tax return.

Besides the rules would bring clarity on inter-corporate and inter-group transactions as also the so-called transfer pricing mechanism that has embroiled companies such as Cairn Energy Plc and Vodafone Group Plc in lengthy disputes, the report added.

The government is also considering reducing the number of tranches for advance tax payments from the current practice of companies paying them out in four annual installments.