No proposal to replace Income Tax Act under consideration, says Sitharaman

Finance Minister Nirmala Sitharaman on Tuesday scotched prospects of unveiling the "Direct Tax Code" in the Union Budget she presents in Parliament on Friday.

"There is no proposal under consideration," she replied in a terse written reply to Congress member Anand Sharma and BJP's Sambhaji Chhatrapati and C M Ramesh in the Rajya Sabha, reiterating that the work is still in progress.

In Parliament today there was half-hearted banter on whether the reply, coming three days before the Union Budget, amounted to leaking a prime aspect of the budget. In any case Sitharaman opted to lace her reply with details of how the government had initiated serious action to simplify direct tax laws, including the Income Tax Act of 1961, to curb tax evasion and widen the tax-payers’ base.

A Task Force constituted in November, 2017 to draft a new Direct Tax Code has not yet given its report despite extensions, reconstitution and nomination of new persons, she disclosed. New terms of reference (TOR) were also given to the Task Force as late as on June 24 this year, which may well delay further the submission of the report.

The Task Force has been asked to submit its report to the government by July 31, the minister added. It is not clear if it will be an interim report with a fuller report incorporating the terms of reference given to it in June later.

The Direct Tax Code, whenever implemented, will replace the Income Tax Act. But since the report of the Task Force is to come after the budget, one may have to wait till next year for the code to come into force.

Once the report is received, the government will have to seek views of all stakeholders by publishing a draft proposal and that itself will take a long time before it is reflected in the next budget.

At the time of speeding up the Goods Services Tax (GST) four years ago as the single all-India indirect tax, Modi government had promised the code as simplification and reform of the direct tax laws but the progress on it has been slow.

Since Sitharaman has shot down speculation over the Direct Tax Code coming anytime soon, she may try to tweak the Income Tax rates for the time being in the budget to provide temporary relief and keep alive hope of a simpler Direct Tax Code eventually.