Recommendations of Justice RV Easwar committee.

The main recommendations of Justice RV Easwar committee.

Union Government has constituted a committee to simplify the provisions of the Income Tax Act (IT), 1961 under set up the 10-member committee under the Chairmanship of former Delhi High Court Judge, Justice R.V. Easwar to remove ambiguities in the tax laws that cause unnecessary litigation and update the laws based on various judgments. The recommendations will go a long way in reducing litigation, but it remains to be seen if the government will accept these recommendations and make changes in the budget.

Terms of reference of the Committee:

To study and identify: provisions in the IT Act, 1961, which are leading to litigation due to the different interpretations. The areas and provisions of the Act which needs simplification in the light of the existing jurisprudence. Provisions which are impacting the ease of doing business.

Suggest: modifications and alternatives to the existing provisions and identified areas in order to bring predictability and certainty in tax laws without substantial impact on the revenue collection and tax base.

Recommendations: The Committee will set up its own procedures for regulating its work and will put its draft recommendations in the public domain in batches after consulting stakeholders. The First Batch shall be submitted by 31st January, 2016 and shall contain as many recommendations as possible.

A committee set up to change direct tax laws has suggested several taxpayer-friendly measures to improve the ease of doing business, reduce litigation and accelerate the resolution of tax disputes. The committee has asked the income-tax department to desist from the practice of adjusting tax demand of a taxpayer whose tax return is under assessment against legitimate refunds due. The panel also proposed that stock trading gains of up to Rs.5 lakh will be treated as capital gains and not business income, a move that could encourage more retail investments in the stock market. The committee has recommended that TDS rates for individuals be reduced to 5% from 10%. It has also clarified that dividend income on which dividend distribution tax has been levied should be treated as part of total income. It also sought to provide an exemption to non-residents not having a Permanent Account Number (PAN), but who furnish their Tax Identification Number (TIN), from the applicability of TDS at a higher rate.

Taxpayers are already grappling with regulatory changes of the Companies Act, 2013, Ind-AS (Indian accounting standards) and the proposed GST (goods and services tax). Industry should be allowed more time to deal with another change of this nature. The committee understands that the taxpayers feel that many of the provisions of the ICDS are capable of generating a legal debate about which at present there is no clarity. The committee also recommended that most of the processes of the income-tax department should be conducted electronically to minimize human interface. To this effect, it suggested that processes such as filing of tax returns, rectification of mistakes, appeal, refunds and any communication regarding scrutiny including notices, questions and documents sought should be done electronically. To make it easy for small businesses, the committee recommended that the eligibility criteria under the presumptive scheme be increased to Rs.2 crore from Rs.1 crore. It also recommended launching a similar scheme for professionals. The presumptive tax is levied on an estimated income and makes life (and work) easier for small businesses.

Under the presumptive income scheme, such professionals or businesses will not need to maintain a book of accounts but just pay tax based on presumptive income calculations. For instance, for professionals it is proposed that 33.3% of their previous year’s receipts will be taken as income on which they will have to pay tax. If their profits are much lower, they will have to maintain a book of accounts clearly categorizing expenditure and pay tax accordingly.