Thread by @sri9011

UPA brought draft Direct Tax Code in 2009 where it proposed lower tax rates by doing away with exemptions. We know how people reacted to the draft Code. Then the Bill that UPA brought after changes was a poor copy of the Income-Tax Act,1961 and DTC fell through.

Why UPA's efforts failed? They didnt realise that people planned long-term finances and investments based on existing tax laws. So, the resistance came from both individuals and corporates.

Modi Govt has learnt from UPA experience and planned the transition gradually

Corporate tax cuts tarnsition has been planned gradually since 2015. Initially, those companies who dont avail any tax holidays (MSMEs) got tax cuts. Rest of the companies got an option to forego exemptions and pay tax at lower tax rates as transitional regime in 2019

What has been done for corporates in 2019 have been done for individuals today. Now Individuals and corporates have been sounded out that this option istransitional phase signalling intent to move to low tax without exemptions regime.

In 2021 budget, expect sunset clauses for exemptions. Each exemption section will be amended to specify from which year in future its benefits will not be available

Forexample,if Govt specifies 2026-27 as sunset clause for home loan interest in next budget. Everyone having a home loan will plan prepayment by then as having it outstanding after that date will give no tax benefits. Similarly, everyone who takes new home loan will know it

Then when sunset clauses expire, there will be no exemptions and there will be a new regime with no exemptions and low rates

This optional new regime for individuals and corporates given to smoothen transition

Some hairsplitting or complex calculation in transition for 3to 4 years is better than sudden change causing loss to people who have taken financial decisions based on existing laws. Everything cant be done overnight suddenly like DeMo.