Even as the government is likely to put up the draft direct tax code for public response and inputs in the next fortnight, the code itself may come into implementation only by end of 2011 or early 2012.
Senior finance ministry officials say the tax code will take at least a year of more work to incorporate opinions and issues raised during public debate.
The code seeks to revise the definition of income, manufacturing and assets (among other things) so as to bring it in line with its various uses and do away with several interpretations.
"The way income was defined in 1961 is no more practically applicable. So, one of the first major changes would be to include various activities and sources that will count as income," said a tax official.
In fact, the plan is also to clarify the definition of income for certain sectors, such as insurance companies where money paid by the policy holder matures over a number of fiscals rather than the same fiscal.
Even on corporate tax, a number of definitions would be made clear so as to make the balance sheet simpler, especially in the case of assets and liabilities.
For example, by defining the very nature of assets, it would be made clear whether a website is or is not an asset for the company.
The tax code is devised to be a pocket book contrary to the present form of the Income Tax Act, which runs into thousands of pages.
The code has been under preparation from 2006 and it is only now that a draft is reaching its final form. These will, however, be open to debate from companies, accounting firms, lawyers and other think tanks.
"The direct tax code as we understand would be made simpler. At the same time, it should be so structured that it helps reduce litigation, which is a major bane for the industry," Vikas Vasal, KPMG executive director, said, adding, "It would be difficult for the code to come out in the final form in the next Budget as a lot of thought and deliberation would be required once it is put in the public domain."
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