How long have you been struggling to make sense of the Income Tax Act to tackle important issues in your life like the tax implications for funding higher education of your children or planning for retirement?
Sure enough, only a tax professional would have bailed you out to figure out the right sections from the Act.
But soon, a new simple avatar of the IT Act, 1961, will be available, easy enough to be comprehended by an average person and may be bought and kept at home for quick reference.
The new tax code, which will be implemented in 2008 but is likely to be thrown open for debate and government's nod this year, is being formalised and vetted by a set of officials at the Central Board of Direct Taxes (CBDT).
According to sources, the flab in the form of explanations from the current I-T Act, 1961, will be cut to make the tax code slimmer.
"The current I-T Act has become quite complicated after hundreds of amendments introduced over time. At a time when several countries are moving towards modern law, the new code for India is certainly a laudable effort," said Mukesh Butani, tax practice leader, BMR & Associates.
By calling the new Income Tax Act a 'tax code', finance minister P Chidambaram wants to live up to his dream to deliver a crisp and modern tax code for the country just like Singapore which has a 25-page tax law.
The struggle of an average taxpayer to understand the I-T Act is being addressed by simplifying the code by using simple language instead of complex tax jargon. Of course, the new code itself will become far lighter after a proposed removal of a number of redundant provisions.
The new code is also likely to have the I-T Rules, which come separately, to be rolled into one to make it the code an one-stop destination. Some old tax rules like Rule 3 which dealt with taxation of perquisites and have been made redundant after introduction of fringe benefit tax, will also be erased. Sections dealing with some issues like business reorganisation will be brought under one roof for simpler comprehension.
After the exercise, all existing direct taxes like income tax, wealth tax, and fringe benefit tax will all be consolidated under one roof. Emphasis is also being laid to remove confusing taxation terms. To begin with concepts of 'previous year' and 'assessment year' have been replaced with financial year.
"Even sections dealing with deductions need to be put together for better understanding," said T P Ostwal, a leading tax consultant. Interestingly, the code may be preceded with Frequently Asked Questions (FAQs) for quick understanding.
Finally, to ensure that tax code are not amended often, the powers of CBDT are likely to be curtailed to issue circulars to make it a more policy making body. Such a move will align the board with other tax boards like the IRS of US or ATO of Australia and HMRS of UK.
Currently, the board is entrusted with the job of tax collection and policy making. More often, conflicts occur between these functions. Even the recently appointed tax ombudsman may be granted legislative powers.
But tax experts warn that the switch to a new Act should not be saddled with transitional issues. Relevant mechanism should be put in place for smoother transition.
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