INCOME-TAX ACT 1961 (Syllabus: GS Paper 3 – Economy)

Context: The government is undertaking a comprehensive review of the Income-Tax Act, with the exercise expected to be completed before the next Budget.

Income-Tax Act 1961

• About: It is the charging statute for Income Tax in India, detailing the levy, administration, collection, and recovery of income tax.
• Enforcement: 1962
• Introduction of Direct Taxes Code: The Government of India proposed the "Direct Taxes Code" to replace both the Income Tax Act, 1961, and the Wealth Tax Act, 1957.
• Purpose: The Act outlines all taxation-related processes, including levy, collection, administration, and recovery of income tax.
• Consolidation and Amendment: The primary goal of the Act is to consolidate and amend taxation rules in the country.
• Detailed Sections: The Income Tax Act contains numerous sections addressing various aspects of taxation in India.

Impact of the Direct Tax Code, 2009

• Simplification and Alignment: The Direct Tax Code (DTC) aimed to simplify and streamline the direct tax system, aligning with international practices on emerging issues.
• Incorporation into the Income Tax Act: Many provisions from the DTC, such as Place of Effective Management (POEM) and general anti-avoidance rules, have been incorporated into the Income Tax Act.

Global Tax Avoidance Rules

• Purpose of Global Reforms: Global tax reforms aim to address tax avoidance through artificial structures and benefit all countries, including India.
• Key Components: The reforms include taxation of the digital economy via the redistribution of tax rights and jurisdictional minimum tax rates, outlined in BEPS Pillars 1 and 2.
• Concerns of Inequality: There is concern that these reforms might disproportionately benefit developed economies.
• Call for Equitable Rules: There is a push for developing international tax rules under the UN rather than the OECD, with India expected to advocate for a fairer framework as a significant voice of the Global South.