The Finance Ministry is accelerating efforts to review and simplify the Income Tax Act, 1961, with a target completion date of January 2025, ahead of the Union Budget in February, sources familiar with the matter revealed. The committee, led by Chief Commissioner VK Gupta, is expected to propose removing redundant clauses, with up to 120 sections, sub-sections, and clauses likely to be scrapped.
The focus of the review is on sections related to exemptions and deductions, particularly in sectors such as telecom, special economic zones (SEZs), and capital gains. While a complete overhaul through a Direct Tax Code is not anticipated, the committee is working on simplifying the existing law.
Additionally, a separate annexure may be introduced to address old clauses for pending cases, and the committee plans to propose multiple amendments to the Income Tax Act based on inputs gathered from various jurisdictions. The Finance Ministry is also expected to seek the assistance of the Law Ministry in drafting the revised Act.
This review comes after Finance Minister Nirmala Sitharaman's July 2024 Budget announcement, which aimed to reduce tax disputes, simplify the tax code, and make it more concise. The Central Board of Direct Taxes (CBDT) chairman, Ravi Agrawal, had earlier indicated that the committee is looking at global best practices and cutting redundancies in the current law, focusing on eliminating clauses that have reached their sunset.
The Income Tax Act, which originated in 1922 and took its current form in 1961, currently comprises 298 sections and 23 chapters. Sitharaman emphasized that the revamped Act will be written in simpler, more accessible language to improve taxpayers' services, provide tax certainty, and reduce litigation.
As the Finance Ministry pushes to meet its January deadline, the proposed changes could be a key feature of the upcoming Union Budget 2025.
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