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What govt must do to make the new tax charter more effective

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Prime Minister Narendra Modi last week announced tax reforms, which includes a new charter defining the rights as well as the obligations of assessees. Clarity on rights is expected to lower disputes between taxpayers and the department. This may encourage people to pay their taxes honestly and, hence, increase the tax base. However, all this may be tough to achieve if the charter is not effectively implemented. Renu Yadav asked experts what needs to be done to make the charter more effective so that it can benefit taxpayers.

Key is timely execution of the charter in letter and spirit

The charter is a step in the right direction. The right of taxpayers should have provisions that will allow fair and impartial appeal and review mechanism. Holding its authorities accountable as well as publishing service standards and reports periodically will help raise the level of service and responsiveness of officials and promote ease of dealing with the tax authorities.

Providing complete and accurate information for tax compliance and endeavouring to reduce the cost of compliance will foster better compliance by taxpayers and reduce disputes and litigation.

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Homi Mistry Partner, Deloitte India (Photo: istock)

Often, taxpayers inadvertently miss reporting income, leading to litigation and levy of interest and penalties. Providing them with information that they should consider while filing tax returns, will make compliance easier.

While the charter is a step in the right direction, the key to its success is the timely implementation and its operation in letter and spirit.

Retrospective taxation should have been done away with

It is a laudable step to provide basic rights to taxpayers, who are usually at the mercy of the tax department and regularly complain of harassment.

There are a few things that the tax department can do to further strengthen the rights of taxpayers. One of the things which the charter talks about is that the department would be accountable. Even though it finds a mention in the charter, it has to be followed by structural reforms of having a system of accountability. Many high-pitched assessments have been quashed by courts with no implication on the tax officer who made an unsustainable tax demand.

Amit Maheshwari Tax partner, AKM Global

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Amit Maheshwari Tax partner, AKM Global

One thing that we found missing in the charter is that taxpayers should have the right to not be subjected to retrospective taxation. Even though this has been the stated policy of the government, putting this as a right will give a lot of comfort to taxpayers. In the past, retrospective amendments been introduced through explanations.

The focus now needs to be on how to improve tax collections

Credit downgrade and defaults have happened in the past but the events have been few and far between. However, this time around, three main events—II&FS default, probable risk of a credit downgrade at the Essel group and trouble at DHFL—happened in a short span of time and this is worrisome.

What is also worrying is that for the first time, even ultra-short term funds and other low duration funds have exposure to these companies. These funds are recommended to hold one’s emergency corpus or to realise very short-term goals as the volatility risk is minimal. But if these funds become vulnerable to a credit default or a downgrade, then investors could be caught on the wrong foot.

Archit Gupta Founder and CEO, ClearTax

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Archit Gupta Founder and CEO, ClearTax

Given recent events, I am compelled to say that if your holding period is less than six months, then opting for fixed deposits is advisable instead of ultra-short term and low duration funds. If your investment horizon is more than six months, you could consider these funds, as a longer-term horizon will help recoup any losses.

It needs to help in reducing taxpayers’ harassment

Credit downgrade and defaults have happened in the past but the events have been few and far between. However, this time around, three main events—II&FS default, probable risk of a credit downgrade at the Essel group and trouble at DHFL—happened in a short span of time and this is worrisome.

What is also worrying is that for the first time, even ultra-short term funds and other low duration funds have exposure to these companies. These funds are recommended to hold one’s emergency corpus or to realise very short-term goals as the volatility risk is minimal. But if these funds become vulnerable to a credit default or a downgrade, then investors could be caught on the wrong foot.

Naveen Wadhwa Deputy general manager, Taxmann

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Naveen Wadhwa Deputy general manager, Taxmann

Given recent events, I am compelled to say that if your holding period is less than six months, then opting for fixed deposits is advisable instead of ultra-short term and low duration funds. If your investment horizon is more than six months, you could consider these funds, as a longer-term horizon will help recoup any losses.

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