Easwar Committee to simplify Income Tax laws

Committee proposes deferring contentious ICDS provisions; some recommendations may be a part of budget 2016.

  • Expert Committee to simplify income tax laws headed by Justice (retired) R.V. Easwar has submitted its report to Union Finance Ministry
  • The 10 member committee has recommended simplifying provisions related to tax deduction at source (TDS), tax refunds and claims of expenditure for deduction from taxable income
  • It also has suggested several taxpayer-friendly measures to improve the ease of doing business in the country, accelerate process of tax dispute resolutions and reduce litigation
source: Live Mint

Recommendations:

  • Deferring the contentious Income Computation and Disclosure Standards (ICDS) provisions and making the process of tax refunds faster
  • Deletion of a clause in IT Act, 1961 that allows the IT department to delay tax refund due beyond six months in case of delay in refunds levying higher interest
  • IT department should stop the practice of adjusting tax demand of a taxpayer against legitimate refunds due whose tax return is under assessment
  • Treat stock trading gains of up to Rs. 5 lakh as capital gains and not business income
  • Tax Deducted at Source (TDS) rates for individuals must be reduced to 5 per cent from current 10 per cent. Dividend income should be treated as part of total income
  • Exempting non-residents not having a Permanent Account Number (PAN), but seeking to provide their Tax Identification Number (TIN) for the applicability of TDS at a higher rate
  • Most of the working processes of the IT departments should be conducted electronically in order to minimize direct human interface
  • Eligibility criteria under the presumptive tax scheme to be increased to Rs. 2 crore from Rs. 1 crore rupees to make it easy for small businesses
  • Such scheme should be also for professionals

Background:

  • Union Government had constituted this committee in October 2015 by following up on a promise to provide a fair and predictable tax regime
  • The committee was tasked to suggest recommendations to overhaul the IT Act, 1961 to remove ambiguities that cause unnecessary litigation and update the laws based on various judgements

What is ICDS?

  • The Central Government had notified 10 Income Tax Computation & Disclosure Standards (ICDS) effective financial year 2015-16
  • Objective: To minimising tax related disputes by bringing greater consistency in the application of accounting principles governing the computation of Income
  • These standards were developed using the old Indian General Audit and Accounting Practices (GAAP)
  • Main Features:
  1. In case of conflict between the provisions of the Income Tax Act, 1961 and ICDS, the provisions of the Income Tax Act would prevail
  2. No need to maintain separate books of accounts for ICDS. Maintain book only for income computation

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