In a significant move aimed at overhauling the country’s tax structure, the government is set to introduce a new Income Tax Bill during the upcoming Budget session of Parliament. This ambitious legislation seeks to streamline and simplify the existing Income Tax (I-T) law, reducing its complexity and volume by nearly 60%, making it easier for taxpayers to navigate.

Reform of the Six-Decade-Old Income Tax Law

Finance Minister Nirmala Sitharaman had announced in her July 2024 Budget speech a thorough review of the six-decade-old Income Tax Act, 1961. She emphasized the need for a concise, clear, and user-friendly tax law to minimize disputes, reduce litigation, and ensure greater certainty for taxpayers. The review process was slated for completion within six months.

A senior government official revealed, “The new Income Tax law will be introduced in the Budget session of Parliament. It will not be a mere amendment but an entirely new legislation. Currently, the draft law is under review by the law ministry and is expected to be presented in Parliament during the second half of the Budget session.”

The Budget session of Parliament is scheduled to run from January 31 to April 4, with a break in between. The first phase, from January 31 to February 13, will commence with President Droupadi Murmu’s address to a joint sitting of the Lok Sabha and Rajya Sabha. This will be followed by the presentation of the Economic Survey for 2024-25. The Union Budget for 2025-26 will be unveiled on February 1. The second phase of the session will reconvene on March 10 and conclude on April 4.

In line with the Finance Minister’s announcement, the Central Board of Direct Taxes (CBDT) formed an internal committee to oversee the review process. The objective was to make the Income Tax Act more concise, lucid, and accessible to taxpayers while eliminating obsolete provisions. To ensure a comprehensive approach, the CBDT also established 22 specialized sub-committees tasked with analyzing various aspects of the existing Act. The government actively sought public feedback, inviting inputs and suggestions in four key categories: Simplification of language, reduction of litigation, easing compliance requirements, removal of redundant or obsolete provisions. The response was overwhelming, with the Income Tax Department receiving approximately 6,500 suggestions from stakeholders, including individual taxpayers, corporations, and tax experts.

Key Features of the New Bill

The upcoming Income Tax Bill aims to address several long-standing issues in the current system. Among its notable features are:

Reduction in Volume: The new legislation will significantly reduce the number of provisions and chapters. Currently, the Income Tax Act, 1961, comprises 298 sections and 23 chapters. The effort is to cut down this volume by about 60%, streamlining the law for better comprehension. Elimination of Obsolete Provisions: The new Bill will remove outdated provisions that no longer hold relevance, thereby modernizing the tax code. Enhanced Clarity: The use of simple and precise language will make the law more accessible, minimizing the scope for ambiguities and misinterpretations. Litigation Reduction: By addressing areas of frequent disputes and ensuring greater clarity, the new law aims to reduce the volume of tax-related litigation, providing greater certainty to taxpayers. Focus on Taxpayer Ease: Simplified compliance procedures will make it easier for individuals and businesses to adhere to tax regulations.

Benefits for Taxpayers and the Economy

The new Income Tax Bill is expected to bring numerous benefits, including: Ease of Understanding: Taxpayers will find the new law more user-friendly, reducing the need for extensive consultations with tax professionals. Reduced Litigation: By minimizing ambiguities, the new law will help resolve disputes more efficiently, saving time and resources for both taxpayers and the government. Improved Compliance: A simplified tax structure will encourage greater compliance, potentially increasing the government’s tax revenue. Economic Growth: Greater certainty in tax laws can enhance the investment climate, attracting domestic and international investors.

The introduction of the new Income Tax Bill marks a pivotal step in the government’s efforts to modernize the country’s taxation framework. The initiative aligns with India’s broader goal of creating a business-friendly environment and ensuring that its tax system is on par with global standards.

Finance Minister Sitharaman’s commitment to completing the review within the stipulated six months demonstrates the government’s urgency in addressing long-standing issues in the tax system. The upcoming Budget session will be a crucial milestone in this journey.

As the government gears up to present this transformative legislation, all eyes will be on the Parliament to witness the culmination of months of meticulous planning and stakeholder engagement. The proposed Income Tax Bill represents a significant leap forward in India’s tax reform journey. By simplifying the law, reducing litigation, and enhancing clarity, the government aims to foster a more transparent and taxpayer-friendly system. If passed, this new legislation could pave the way for a more efficient and equitable taxation framework, benefitting individuals, businesses, and the economy at large.