Tax Reforms

Govt moves to redraft Direct Tax Laws to modernize income tax


Mains Paper 3: Economy | Mobilization of resources

From UPSC perspective, the following things are important:

Prelims level: Direct and indirect taxes

Mains level: Read the attached story


  • The government will take a fresh look at modernizing the Income Tax Act, 1961, after an earlier effort by a six-member task force got derailed.

New propositions

  1. The new direct tax law is expected to make taxation more progressive, wherein the tax burden will be higher on those with better payment capacity.
  2. This approach was evident in the government’s choice of tax rates when it reformed indirect taxation by ushering in the goods and services tax (GST).
  3. Luxury items are subject to the highest rate of 28%-plus cess and mass use items are either exempted or are kept in the 5% GST slab, although a four-slab system risked making GST more complex.

Issue over Inheritance Tax

  1. The task force is however, unlikely to propose the difficult-to-implement inheritance tax.
  2. Although it may be easier to say that one should tax the rich more, implementing an inheritance tax is complex.
  3. It can only lead to high-income earners getting resettled elsewhere.

Other Measures

  1. The union government has appointed a task force, which will advise the government on drafting a new direct tax law that suits India’s economic requirements.
  2. The government has so far attempted to phase out corporate tax concessions, reduce corporate tax rates for small businesses to 25% and give relief to small income earners by lowering tax rates.
  3. The government also plugged some of the massively abused loopholes in the bilateral tax treaties with Mauritius to prevent tax-evaded money coming back into the country in the form of foreign direct investment.
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