Centre launches process to revamp income tax regime

Revamp Income Tax: The Union government formally launched the process to revamp the existing income-tax regime with four key objectives in mind – simplification of language, reduction of litigations, ease of compliance, and scrapping of obsolete provisions.

This initiative is in line with announcements made in the Union Budget 2024-25 by finance minister Nirmala Sitharaman in July, weeks after the Narendra Modi government was sworn in for a third term.

“The goal is to make the Act (Income-tax Act, 1961) concise, clear, and easy to understand, which will reduce disputes, litigation, and provide greater tax certainty to taxpayers,” the Central Board of Direct Taxes (CBDT), an arm of the finance ministry, said in a statement.

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To this end, CBDT formed an internal committee to oversee a comprehensive review of the Income-tax Act and invited suggestions from the public. To facilitate this, the statement said a webpage has been launched on the e-filing portal.

During her Budget speech, Sitharaman announced the government’s intent to make tax laws simpler. “I am now announcing a comprehensive review of the Income-tax Act, 1961. The purpose is to make the Act concise, lucid, easy to read and understand. This will reduce disputes and litigation, thereby providing tax certainty to the taxpayers,” she said in Parliament on July 23.

“It will also bring down the demand embroiled in litigation. It is proposed to be completed in six months. A beginning is being made in the Finance Bill by simplifying the tax regime for charities, TDS rate structure, provisions for reassessment and search provisions and capital gains taxation,” she added in the speech.

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Over the years, the government has made several reforms in both direct and indirect taxes. While launching the Goods and Services Tax (GST) on July 1, 2017 was a transformational change in the indirect tax regime, the government in 2019 slashed the corporate tax rate for domestic manufacturing companies from 30% to 22% and for new manufacturing firms from 25% to 15% in measures aimed at attracting investments and reviving growth.

On February 1, 2020, during her 2020-21 Budget speech, Sitharaman announced a similar option to individual taxpayers, reducing rates for those who do not seek deductions and exemptions such as provident fund, housing interests, life insurance, medical insurance, education fee for children and New Pension Scheme. After initial hiccups and more prodding in terms of incentives, this new simplified tax regime has picked up from the current year.

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“It has been our endeavour to simplify taxation. We have taken a number of measures in the last few years including the introduction of simplified tax regimes without exemptions and deductions for corporate tax and personal income tax. This has been appreciated by taxpayers. 58 per cent of corporate tax came from the simplified tax regime in financial year 2022-23,” Sitharaman said in this year’s Budget speech.

The government’s efforts have seen a jump in revenue collections. Gross direct tax collections saw a robust 21.48% annualised increase to ₹12.01 lakh crore in the current financial year till September 17, according to the latest data. GST collections also remained over ₹1.7 lakh crore every month in the current financial year so far.