Like most other pieces of legislation, we inherited our Income-tax (I-T) Act from the British. Originally introduced in 1922, the Act was revamped in 1961. Direct tax laws, encompassing both the I-T Act and the rules as they stand today, are truly baffling with a plethora of interwoven sections, subsections, clauses, subclauses, cross references, explanations and provisos. Of the five-decade-old I-T Act, a patchwork of amendments carried out from time to time, largely through annual fiscal budgets and occasionally through various amendment Acts, have added to the complexity.
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Statistics never lie, and these statistics point to an urgent need for simplification of the I-T Act. The I-T Act originally contained only 298 sections and it is interesting to know that out of 298 original sections, only 62 sections have been deleted. Over the last 48 years, 208 sections have been amended and only 28 sections remain in original form without any amendment. As many as 390 new sections (some of which stand deleted) have been inserted over the years. Today we have about 625 sections. This figure of 625 is mind-boggling, to say the least, but hang on—it does not cover the rules, circulars and notifications which are also part of tax laws.
In his budget speech of 2005, then finance minister P. Chidambaram announced the intent to introduce a brand new and simplified I-T Act. Since then, we have often heard announcements that a new draft Bill revamping the entire I-T Act is around the corner, but in the public domain, little is known of its status or the key areas that have been taken up for simplification. Hopefully, the draft Bill will soon see the light of day for public discussion.
Some of the key issues/provisions which should stand in front of the queue, when it comes to simplification and rationalization are detailed below:
Often, tax provisions are subject to varied interpretation, recourse even has to be taken to the “introduction memorandum” of each section to understand the intent of that particular provision. The problem lies in the complexity of language used. Amendments to the sections further complicate the matter.
A classic example is section 10(23C) which exempts income received by certain entities such as hospitals, educational institutions, etc. This section was originally a simple provision; today it runs into at least five pages and contains as many as 15 provisos. (Provisos can be termed as additional provisions which require meeting of certain criteria, in the absence of which the main section will not apply.)
Or take another instance of the use of a single running lengthy sentence, worse still if it contains the terms “inclusions” and “exclusions”, adding to complexity.
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