In the upcoming Union Budget, the government is set to propose significant changes to the Income Tax Act, 1961, aiming to streamline and simplify the tax code.
Finance Minister Nirmala Sitharaman had already indicated in Budget 2024 that the government would overhaul the Act, to make it more concise and easier for taxpayers to understand. These changes are expected to be part of a broader revamp that will be introduced in the budget session of Parliament on February 1.
One of the major proposals under consideration is replacing the complex structures used to compute income with simpler formulas. This move is intended to make tax calculations more straightforward and accessible. The government is also looking at overhauling the terminology used in the Act, specifically replacing the terms “assessment year” and “financial year” with a single, unified definition of “tax year,” which is likely to reduce confusion among taxpayers.
The new law is also expected to ease the burden on taxpayers when it comes to paperwork. Currently, taxpayers must submit multiple forms with their returns. The government plans to reduce the number of additional forms required and make them available online, streamlining the filing process. Additionally, there will be efforts to present tax details in a more digestible format, including using tabular depictions for similar types of taxpayers, which should make it easier for individuals to follow.
In Budget 2024, Sitharaman announced a comprehensive review of the Income Tax Act within six months, and the process has already begun. According to reports, over 6,500 suggestions from stakeholders have been received, and 22 specialised committees are currently examining various aspects of the Act. The government aims to modernise the tax laws, reduce the bureaucratic burden on taxpayers, and enhance compliance with the tax regime.
The overhaul of the Income Tax Act is part of a wider effort to tackle the growing issue of tax disputes. Over the past decade, tax disputes in India have surged, with the total amount in dispute crossing ₹10.5 trillion (approximately $123 billion) by the end of the 2023 fiscal year. The government hopes that simplifying the tax system will help reduce this burden and ensure a smoother experience for taxpayers.
The Income Tax Act, 1961, which currently consists of 298 sections and 23 chapters, governs the imposition of direct taxes in India, including personal income tax, corporate tax, securities transaction tax, and gift and wealth taxes. The government aims to reduce the length of the Act by around 60%, making it more manageable and efficient.
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