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The revenue department has proposed setting up a ruling authority, such as the Advance Pricing Agreement (APA) or Dispute Resolution Panel (DRP), to ascertain tax liability and even settle tax disputes.
The concept will allow Income-Tax Department and taxpayers to sit together and resolve disputes through negotiations and arrive at a mutually agreed figure for the tax to be paid.
The move, if implemented, would help unclog billions of direct tax cases pending at different courts. The total tax claims locked up in these litigations is about Rs 5 trillion.
The concept is the part of minutes of meeting circulated internally last month, wherein revenue department discussed various measures and roadmap in line with its vision 2047.
Business Standard has reviewed the minutes being prepared following the annual conference attended by officials from finance ministry, the Central Board of Direct Taxes and senior-rank revenue officers.
At present, APA deals with transfer pricing cases, which determines tax liability in advance to avoid any dispute in future. DRP is an alternative dispute mechanism mainly deals in international taxation cases.
Expert says various Authorities for Advance Rulings take up issues from a technical standpoint and do not cover wider matters of income-tax. Also AAR decisions have not helped in containing litigations as most of the matters go for appeal. “Such a process of optional and non-binding mediation can be very helpful in eliminating tax disputes, particularly those relating to transfer pricing and other matters as well, said Akhilesh Ranjan, Advisor on Tax Policy at PwC and former member of CBDT.
Among other measures, the department also looking to streamline its system to tax corporate sector in agriculture, phase out tax exemptions, tap new emerging sectors like crypto assets, in a bid to increase tax to GDP ratio to 15-20 per cent.
The revenue department expects India’ direct tax collection should be 60 per cent of the government’s total revenue receipts which could help increase the tax-to GDP ratio to desired level.
Currently, direct tax contributes half of the total government’s revenue receipts. In FY22, India recorded the highest tax-to-GDP ratio of 11.7 per cent.
The department also discussed setting up a specialised unit for examining high-net worth individuals having income more than Rs 5 crore and to target those companies which are working across borders and running hawala operations.
The department is also pining hopes on global tax policy to tax digital giants like Facebook, Google, etc which they expect to be in India’s favour.
The roadmap also suggest amending the I-T Act, 1961 extensively. IT Act is old and need continuous and vast amendments. A new law takes time to settle down so in the meantime, a legal provision for CBDT to be provided which could have a binding on taxpayers and courts, it said. Also to weed out exemptions and deductions instead of reducing tax rates.
The internal note also stressed on ease of compliance including filing of Income-tax returns to the extent that it could be filed in 15-20 minutes. It suggests app-based filing of ITRs, improvement of pre-filed forms by increasing data, making data available in real time basis are among other measures.
Other suggestions includes, revisiting TDS provisions, increasing TDS coverage to cover more transactions, reduction of gap between working age population and tax filers, better investigation methods, capacity building for information sharing with other countries or foreign jurisdiction.
The department also highlighted the immediate challenge with regard to new reassessment regime -148A, says that it requires uniformity and clarity in timelines and limitations, and should be reflecting on the I-T systems.
“Integration of legal provisions with systems are very important. We should work towards efficient system, where I-T systems should be in tandem from the date of publication of Finance Bill so that timeline mandated can be replicated in the Systems.
And in case, something going to take more time to be available as facility on systems, then the implementation date which is normally April 1 should be deferred, it noted.
The department also discussed the possibility of having a zero year where there will be no assessment to catch up unresolved cases.
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