IT-Act Simplification Committee Report Part 1 – A step towards Indian tax law renaissance?

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Within an impressive time span of just two and a half months since the constitution of the IT Act Simplification Committee (chaired by Retd. Justice R. V. Easwar), the Committee has released Part 1 of its Report containing draft proposals for consideration of various stakeholders. The draft proposals encompass suggestions in the form of 27 amendments to the IT Act and 8 reforms through administrative instructionsThe first draft report focuses on pressing issues and recommends, inter alia, the deferment of Income Computation and Disclosure Standards (‘ICDS’), addresses the vexed issue of Sec 14A disallowance and also rationalizes Sec 206AA provisions.

 

 

Do the amendments and reforms endorsed in the first draft Report achieve the aim of simplification of the IT Act provisions? What are the challenges that we could witness in the implementation of these proposals? What are the other pressing issues in the IT Act provisions that need to be simplified?

Rajendra Nayak
Partner, International Tax Services, Ernst & Young LLP

In October 2015, a 10-member committee was formed by the Ministry of Finance to simplify the provisions of the income-tax law. The committee released its first set of draft recommendations on 17 January 2016. The first draft report focusses on simpler issues and issues needing immediate attention. Most of the recommendations in the report deal with issues relating to withholding tax provisions, assessment, recovery and penalty proceedings. Even though many of the issues dealt with in the report appear to be small in terms of change required, the issues nevertheless have been a cause for concern for a number of taxpayers and have been a significant source of operational tax risk.

A review of the recommendations leaves one pondering on the ill-conceived nature of some of these provisions when they were originally enacted and the complications caused by them. A number of these provisions seem to be experimental provisions, some of which are truly whimsical – a case of legislate first, and think afterwards! The committee needs to be commended for identifying these provisions, which often tend to miss the attention of any panel which is charged with suggesting changes to the tax law. It is also welcome that the...

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Ketan Dalal
Managing Partner (West) and Sr tax partner, PwC

1.         Key takeaways from Easwar Committee report  >         Given that the mandate was, amongst other things, simplification / Ease of Doing Business ("EODB"), the Committee has, within the limited time available, done an excellent job; the Committee has also dealt with provisions which seek to create alevel playing field between the assessee and the tax department.  >        A few substantive suggestions have been made, but the report focusses more on procedural aspects such as TDS, stay, reopening of assessments etc; there is also a very welcome reference to e-governance - for example, the Committee's recommendation that all communication to and from the tax department should be undertaken electronically.  2.         Key Substantive suggestions  >         While there are relatively few substantive suggestions, these are quite significant; the recommendations to defer ICDS and status quo on IND AS are far reaching and very practical.  >         in addition to the ICDS etc, and also capital gains vs business income clarity, one very important substantive recommendation...

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Vipul R. Jhaveri
Managing Partner - Tax Deloitte Haskins & Sells LLP

It is heartening to see the recommendations of the Income Tax Simplification Committee. The Committee has made recommendations on core issues like rationalising disallowance under section 14A, deferment of ICDS, etc. as well as key procedural issues like fresh claims during assessment proceedings, speedy refunds, rationalisation of payment of demands, etc. I do not see any significant challenges in implementation of these proposals. Once these recommendations are implemented, it will definitely provide much needed relief to taxpayers. Having said this, this first round of recommendations is a good starting point; however a lot of work needs to be done to make the law more tax-friendly. One big area of concern for taxpayers is litigation, especially in relation to transfer pricing and tax holidays – this need to be addressed immediately. Other key issues that need to be looked at are issuance of guidelines on GAAR for implementation in a more objective manner, doing away with retrospective amendments, etc. To sum up, the recommendations of the Committee are a good beginning – they have however only touched the tip of the iceberg – a lot of work still needs to be done to achieve simplicity in the tax law.

Girish Vanvari
Partner & Head - Tax, KPMG in India

The first batch of recommendations issued by the Easwar Committee is a progressive step towards simplifying the provisions of the Income Tax Act.

The Report proposes changes to important provisions of the Act e.g. definition of capital assets, disallowance of expenditure related to exempt income (Section 14A), taxation in the hands of purchaser of the property on account of difference between the sales price and stamp duty, TDS, ICDS, etc which if implemented would reduce the litigation arising  due to interpretative differences.

The Committee is expected to come out with a second batch of the recommendations which will hopefully deal with more complex issues such as manner of taxability of indirect transfer of shares, guidelines to determine POEM, GAAR etc which are widely awaited.

 

It will be interesting to watch out for the final set...

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Mukesh Butani
Managing Partner, BMR Legal

It’s a good first document focusing upon several procedural aspects and chargeability issues that lead to avoidable litigation. I anticipate that the budget proposals shall factor them whilst being presented. Though, details would be awaited. I guess for curtailing litigation, besides legislative changes several administrative aspects have to be dealt with.

 

There are several good proposals by the committee on pre-deposit provision, akin to Indirect tax and with suitable safeguards. Also, many proposals tend to address challenges of small tax payers such as characterization of capital gains tax etc. Overall, a good start.

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