The Indian government is set to overhaul the Income-tax Act of 1961 in a bid to simplify tax filing rules, easing compliance for taxpayers and addressing disputes that have escalated to over $120 billion in the past decade.
According to insiders, the revised legislation is in the final stages of preparation and will likely be opened for public consultation around mid-January. Following this, the proposed changes are expected to be introduced in the Union Budget, scheduled for early February.
Key Proposed Changes to the Income-Tax Act
The revamp aims to make tax laws more accessible and taxpayer-friendly without altering tax rates or policies. Some of the notable changes include:
- Simplified Income Computation: Complex structures will be replaced with formulas for easier calculations.
- Unified Tax Year Definition: A single definition will replace the current distinction between the assessment year and the financial year.
- Tabular Depictions: Information for taxpayers with similar profiles will be presented in simplified, tabular formats.
- Fewer Forms: A reduction in additional forms required for tax filing, with an emphasis on making them available online.
Addressing Taxpayer Concerns
The move aligns with Finance Minister Nirmala Sitharaman's July 2024 announcement, in which she committed to a comprehensive review of tax legislation to make it less burdensome for taxpayers. The government has been modernizing tax laws for decades to improve compliance and reduce bureaucracy, but disputes have more than doubled to Rs 10.5 trillion ($123 billion) in the last 10 years.
The Finance Ministry has not yet commented on the specifics of the reform.
Modernizing Tax Laws for Economic Growth
By simplifying tax processes and rationalizing the Income-Tax Act, the government hopes to boost taxpayer satisfaction, enhance compliance, and reduce litigation. These changes are expected to make filing returns less tedious and streamline dispute resolution.
The proposed reform is part of India's broader push to modernize its tax system and ensure ease of doing business for individuals and corporations alike.
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