In the 2024-25 Union Budget, Union Minister for Finance and Corporate Affairs Smt. Nirmala Sitharaman announced an overhaul of the Income Tax Act, 1961. Following this announcement, the Central Board of Direct Taxes (CBDT) set up an internal committee to lead a comprehensive review of the Act. The Committee for Comprehensive Review, chaired by Mr. V.K. Gupta, Chief Commissioner of Income Tax, will focus on simplifying, rationalizing, and modernizing the Act to create greater clarity and ease of compliance for taxpayers.
The Income Tax Act, 1961, has long been due for reform. With several amendments over the years, the Act has become intricate and, at times, difficult to interpret. This review aims to simplify and streamline the Act to improve taxpayer experience, reduce disputes, and enhance compliance.
Goals of the Committee
The committee’s primary objectives include:
- Simplifying the Act’s language
- Reducing litigation and compliance burdens
- Eliminating outdated or obsolete provisions
To achieve these, they are inviting public feedback through a dedicated webpage on the e-filing portal.
Simplification of Language:
One of the main focuses is making the language of the Act clearer and more concise. With simpler language, taxpayers can better understand their obligations, reducing ambiguity and potential disputes.
Reducing Litigation:
Disputes arise when taxpayers interpret provisions differently than tax authorities. By simplifying and clarifying provisions, the committee hopes to reduce litigation, making tax compliance smoother for everyone.
Lowering Compliance Burdens
Filing taxes can be cumbersome. By removing excessive paperwork and redundant forms, the committee aims to ease the compliance burden on taxpayers and simplify tax filing procedures.
Addressing Redundant Provisions:
Over the years, many sections have become obsolete. The review will focus on eliminating these unnecessary provisions, creating a streamlined, modern Act that reflects current tax practices.
Abridged Income Tax Act for Small Taxpayers:
Small taxpayers often face unique challenges. To address this, the committee plans to introduce an abridged version of the Act, focusing on the essentials and simplifying the process for these individuals.
Streamlining Multiple Sections:
The Act contains numerous provisos and clauses within sections. The committee’s approach will consolidate and simplify these, making each section easy to understand with minimal cross-references.
Standardizing Department Interpretations:
Consistency in interpretation by tax authorities is vital. The review aims to establish a single interpretation of each provision across the board, reducing discrepancies in assessment.
Eliminating Tax Holidays and Sunset Clauses
The committee is considering phasing out tax holidays and sunset clauses, which often complicate the Act and create inconsistencies. By streamlining these elements, the Act will become more straightforward.
Creating a Mediation Mechanism:
A mediation process is proposed, allowing disputes to be resolved by retired officers and independent professionals. This mechanism will help resolve issues before they escalate to litigation.
Decriminalization of Offenses:
Certain tax offenses will be decriminalized, shifting the focus to resolving issues rather than penalizing taxpayers, fostering a more taxpayer-friendly environment.
Faceless Assessments – Key Changes:
Concerns around faceless assessments, such as the lack of human interaction, will be addressed. The committee is working on refining these assessments to ensure transparency and fairness.
Reform of Surcharge and Education Cess:
Plans to subsume the surcharge and education cess within the regular tax rate are underway, simplifying the tax calculation process and providing clarity on total liabilities.
Final Thoughts
The Income Tax Act revamp marks a pivotal step toward a more modern, taxpayer-friendly system. This initiative promises enhanced transparency, reduced compliance, and simplified tax obligations, benefiting taxpayers and authorities alike.
Frequently Asked Questions
1. What is the purpose of the Income Tax Act review?
The review aims to simplify the Act, making it clearer, reducing disputes, and easing compliance for taxpayers.
2. Will tax rates change as part of this revamp?
No, the review will not alter tax rates; it focuses solely on simplification and streamlining.
3. Who is leading the review?
Mr. V.K. Gupta, Chief Commissioner of Income Tax, is chairing the committee for this review.
4. How can I contribute my suggestions?
You can provide feedback via the e-filing portal’s dedicated webpage by entering your name and mobile number and validating with OTP.
5. Will small taxpayers benefit from this revamp?
Yes, the committee plans to introduce an abridged version of the Act specifically tailored for small taxpayers.