After implementing path breaking Goods and Services Tax (GST), changing the cumbersome and archaic Income Tax Act is the next big agenda of Prime Minister Narendra Modi-led Union Government. While addressing the tax officials' annual conference in September last year, PM Modi had called for fixing the country's tax administration by 2022. At the event, the PM had said that the Income Tax Act 1961 was drafted 50 years ago and it needed to be redrafted. 

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In November last year, the government had set up a six-member task force to draft a new direct tax law to replace the existing Income Tax Act 1961. "Accordingly, in order to review the Act and to draft a new direct tax law in consonance with economic needs of the country, the Government has constituted a task force," a finance ministry statement had said then. The convenor of the panel, Arbind Modi, retired on September 30, leaving the report in limbo.

The task force has now undergone some changes and it will submit the draft by February this year. In a statement on Monday, the finance ministry said the task force to draft a new direct tax law to replace the existing Income Tax Act will submit its report by February 28.

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Central Board Of Direct Taxes (CBDT) member Akhilesh Ranjan has been named as the head of the task force. "In partial modification of the earlier order, the Government has appointed Akhilesh Ranjan, Member (Legislation), CBDT as Convenor of the Task Force. Other members of the Task Force remain unchanged. The Task Force shall submit its report to the Government by February 28, 2019," the finance ministry said.

How tax payers, businesses may benefit

The overhaul of the IT Act is expected to help a large number of taxpayers as well as corporates. The draft proposal will be likely guided by the principle of keeping taxes low and removing exemptions on the lines of best practices abroad. 

At present, income up to Rs 2.5 lakh per annum is exempt from tax for individuals. There has been a longstanding demand to increase this up to Rs 5 lakh. The task force may look into this demand and increase the limit.   

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The new direct tax code will expectedly, try to make personal income tax rates 'progressive' by giving relief to taxpayers in 5% to 20% slabs.  

The task force has been formed to draft direct tax laws in line with the norms prevalent in other countries, incorporating international best practices, keeping in mind the economic needs of the country. If global precedents are taken for consideration, countries like the US have lowered corporate tax to attract investors and increase jobs. 

The new direct tax code will try to bring more people in the tax net, make the system more equitable for all classes of taxpayers, and help businesses become more competitive with a low corporate tax regime and phasing out of cumbersome exemptions to reduce litigation. 

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The new code may also try to redefine concepts like income and the scope of taxation.  

The government is committed to lower the corporate tax from 30% to 25%. The new code will take this agenda forward. At present, the 25% tax rate is already available for businesses with sales worth less than Rs 250 crore.