Are Direct Taxes transferable or non-transferable? Explain the recent Direct Tax Reforms undertaken in India.

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Are Direct Taxes Transferable or Non-Transferable? And Recent Direct Tax Reforms in India

Introduction:

Direct taxes are taxes levied directly on the income or wealth of individuals or corporations. Unlike indirect taxes (like GST), they cannot be passed on to a consumer. The key characteristic differentiating direct and indirect taxes is the incidence of tax – who ultimately bears the burden. In direct taxes, the incidence and impact fall on the same entity (the taxpayer). The question of transferability hinges on this fundamental characteristic. The recent tax reforms in India aim to simplify the tax system, broaden the tax base, and improve tax compliance.

Body:

1. Transferability of Direct Taxes:

Direct taxes are generally non-transferable. This is because the liability for the tax rests squarely with the individual or entity whose income or wealth is being taxed. For example, income tax levied on an individual’s salary cannot be shifted to someone else. The taxpayer is legally obligated to pay the tax, regardless of their financial dealings with others. Attempts to “transfer” the tax burden, such as through contractual arrangements, are usually ineffective and may even have legal ramifications. The tax remains the responsibility of the original taxpayer.

2. Recent Direct Tax Reforms in India:

India has undertaken significant direct tax reforms in recent years, primarily aimed at simplifying the tax system and boosting economic growth. These reforms can be categorized as follows:

2.1. Simplification and Rationalization: The introduction of the new income tax regime (optional) in 2020 is a prime example. This regime offers lower tax rates with fewer exemptions, making tax computation simpler. This aims to reduce compliance burden and encourage tax compliance. However, it also removed many deductions previously available under the old regime, potentially impacting lower and middle-income taxpayers.

2.2. Tax Base Broadening: Efforts have been made to bring more individuals and entities under the tax net. This includes measures to improve tax information gathering and enforcement, particularly targeting the informal economy. The use of technology, like linking PAN with Aadhaar, has played a crucial role in this effort. However, concerns remain about the potential for increased compliance burden on small businesses and individuals.

2.3. Dispute Resolution: The government has implemented measures to streamline dispute resolution mechanisms. This includes initiatives like the Vivad se Vishwas scheme (a direct tax dispute resolution scheme), aimed at reducing pending tax litigation. While this has helped resolve many long-standing disputes, the effectiveness of such schemes in the long run needs further evaluation.

2.4. Faceless Assessment and Appeals: The introduction of faceless assessment and appeal mechanisms has aimed to reduce human intervention and potential for bias in tax administration. This enhances transparency and accountability. However, concerns about the potential for impersonal interactions and lack of individual attention remain.

Conclusion:

Direct taxes are fundamentally non-transferable due to their inherent nature. The liability rests with the taxpayer, regardless of any attempts to shift the burden. India’s recent direct tax reforms have focused on simplification, broadening the tax base, and improving dispute resolution. While initiatives like the new tax regime and faceless assessment have streamlined processes and enhanced transparency, challenges remain in ensuring equitable impact and addressing concerns about compliance burden, particularly for smaller taxpayers. Moving forward, a balanced approach is crucial, focusing on both simplification and ensuring that the tax system remains fair and effective in generating revenue for national development while upholding constitutional values of justice and equality. Further emphasis on taxpayer education and outreach programs can significantly improve compliance and acceptance of the reformed tax system, leading to a more robust and sustainable economy.

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