Why Income Tax Act being replaced with DTC

As per Note given by Ministery of Finance to Standing Committee on Finance and presented  on 9-3-2012 in 49th report of Committee:
The Income-tax Act, 1961, has been subjected to numerous amendments since its  passage fifty years ago. It has been considerably revised, not less than thirty-four times, by amendment Acts besides the amendments carried out through the annual  Finance Acts. These amendments were necessitated by policy changes due to the changing economic environment,      increasing sophistication of commerce, increase in international  transactions  as  a  result  of  globalization,  development  of information technology, attempts to minimize tax avoidance and in order to clarify the statute in relation to judicial decisions. As a result of all these amendments, the basic structure of the Income-tax Act has been  over burdened  and  its  language  has  become  complex.  In  particular,  the numerous amendments have rendered the Act difficult to decipher by the average   tax-payer.  The  Wealth-tax  Act,  1957  has  also  witnessed amendments.

The Government, therefore, decided to revise, consolidate and simplify the language  and structure of the direct tax laws. A draft Direct Taxes Code along with a  Discussion Paper was released in August, 2009 for public comments. It proposed to replace the Income-tax Act, 1961 and the Wealth-tax Act, 1957 by a single Act,  namely the Direct Taxes Code. Public  and  stakeholder  feedback  on  the  proposals  outlined  in  these documents was analysed and suggestions for amendments received from members  of  the  public,  business  associations  and  other  bodies  were taken into account by the Government.  Thereafter, a Revised Discussion Paper addressing  the  major  issues  was  released  in  June,  2010.

The Government seeks to provide a modern tax code in step with the needs of a  fast  growing economy and is aimed at widening the tax net and increasing  Government  revenues. The  salient  features  of  the  code  are  as follows:

(i)         It consolidates and integrates all direct tax laws and replaces both the Income  Tax  Act,  1961  and  the  Wealth  Tax  Act,  1957  by  a  single legislation.

(ii)        It  simplifies  the  language  of  the  legislation.  The  use  of  direct,  active speech,  expressing  only  a  single  point  through  one  sub-section  and rearranging the provisions into a rational structure will assist a lay person to understand the provisions of the Direct Taxes Code (DTC).

(iii)       It indicates stability in direct tax rates.       Currently, the rates of tax for a particular year are stipulated in the Finance Act for that relevant year. Therefore,  even if there is no change proposed in the rates of tax, the Finance Bill has still to be passed indicating the same rates of tax. Under the Code, all rates of taxes are proposed to be prescribed in Schedules1 to the  Code, thereby obviating the need  for  annual finance bill, if  no change in the tax rate is proposed.

(iv)       One of the key aims of tax code is to provide a system which takes into account   increased  cross  border  mergers  and  acquisition  by  Indian corporates.

(v)        It is also expected to streamline tax rates and administration for foreign institutional investors.

(vi)       It strengthens taxation provisions for international transactions.  This has been  reflected  in the new provisions. The salient new provisions with regard to international taxation are :

(a)       Introduction  of  Advance  Pricing  Agreements  for  International

Transactions2-

(b)       Alignment of concept of residence3  (of a Company) with India‘s tax treaties            by                 introduction             of    concept    of    ―place     of    effective management‖ instead of ―wholly controlled‖ in India.

(c)        Controlled Foreign Company Regulations4-

(d)       Introduction of Branch Profit Tax5  on foreign companies in lieu of higher rate of taxation.

(e)       Introduction  of  General  Anti  Avoidance  Rule  (GAAR)6    to  curb aggressive tax planning.

(vii)      Rationalising exemptions.

(viii)     Replace profit linked tax incentives with investment linked incentives7- (ix)     Simplification of Appellate Procedure for Public Sector Undertakings8.