The New Income Tax Law: Simplification, Reforms, and Privacy Concerns UPSC NOTE

  The New Income Tax Law: Simplification, Reforms, and Privacy Concerns UPSC Relevance Prelims: Indian Economy (Taxation, Direct Taxes, Tax...

 The New Income Tax Law: Simplification, Reforms, and Privacy Concerns

UPSC Relevance

• Prelims: Indian Economy (Taxation, Direct Taxes, Tax Reforms), Indian Polity & Governance (Fundamental Rights - Article 21, Right to Privacy, Parliamentary Committees).

• Mains:

• GS Paper 3: Indian Economy and issues relating to mobilization of resources, growth (Taxation); Government Budgeting.

• GS Paper 2: Government policies and interventions for development in various sectors; Parliament and its functioning; Fundamental Rights.

• GS Paper 4 (Ethics): Ethical concerns in governance (balancing state power and individual rights).

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Key Highlights from the News

Detailed Explanation of Concepts

This topic directly relates to tax reforms and fundamental rights in India:

• Direct Tax Reform in India:

• The 1961 Act is outdated and complex. There has been a long-standing demand for a new Direct Tax Code (DTC) to simplify it. This new bill is a major step in that direction.

• The main objectives are to simplify the law, reduce litigation, and encourage tax compliance.

• Parliamentary Select Committee:

• This is an ad hoc committee formed to examine a specific bill in detail.

• Its members are MPs from that house. Its report is only a recommendation, which the government can accept or reject.

• Key Taxpayer-Friendly Provisions:

• Updated Returns: This system allows taxpayers to voluntarily correct errors in their original returns within a specified period (here, four years). This encourages voluntary compliance.

• Reopening of Assessment: The tax department has the authority to re-examine old cases if there is suspicion of suppressed income. Limiting this period to five years provides more certainty for taxpayers.

• Conflict with Right to Privacy:

• Puttaswamy Judgment (2017): The Supreme Court, in this judgment, declared the Right to Privacy as a fundamental right under Article 21 of the Constitution, as part of the right to life.

• While tax collection is a legitimate objective of the government, the means used for it must be "proportional." There should not be excessive intrusion into privacy.

• The new power to demand and override all personal passwords is disproportionate and may be challenged in court as a violation of fundamental rights.

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