Nirmala Sitharaman, the finance minister, declared she would introduce the new income tax bill in Parliament when she presented the Union Budget 2025. “Our administration implemented a number of reforms for the benefit of taxpayers over the last ten years, including:
(1) faceless assessment
(2) taxpayers charter
(3) speedier returns
(4) nearly 99 percent of returns are on self-assessment and
(5) the Vivad se Vishwas program.
In keeping with these initiatives, “I reiterate the tax department’s dedication to trust first, scrutinise later. Next week, I also plan to introduce the new income tax bill,” Nirmala Sitharaman stated on February 1, 2025, budget speech.
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This follows the announcement of the Income Tax Act review in the July Union Budget 2024. The goal of the review was to make the income tax regulations clear, short, and simple to read and understand. It is anticipated that this will minimise conflicts and legal action, giving taxpayers tax stability.
Our government had already replaced the Bharatiya Danda Sanhita with the Bharatiya Nyaya Sanhita in the area of criminal law. Nirmala Sitharaman stated that ” I am pleased to notify the nation and this august House that the new income tax bill would uphold the same values as Nyaya. With about half of the current law’s chapters and words, the new bill will be straightforward and easy to read.” During her Budget 2025 speech, Sitharaman also stated that it would be easy for taxpayers and tax administration to grasp, resulting in tax certainty and fewer lawsuits.
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Tax professionals have recently speculated that the new income tax bill may cut the 298 current tax regulations in half.
The proposed income tax bill’s goal and approach are ambitious, but it’s also a massive undertaking, according to professional. The current version of the Act is over 60 years old. Plenty additions, removals, and revisions have occurred over the years, creating a number of difficulties, some of which include:
- Long sentences and complex wording that create ambiguity in interpretation
- cross-referencing of sections that make them hard to understand and refer to several provisos and explanations of sections that expand the range of possible interpretations
- parts of the Act that are nonetheless redundant
- Complex and many parts that serve the same or similar purposes, such as tax withholding.
- Circulars and notifications that are not specifically included in the Act but that need to be taken into account for interpreting its operative provisions.
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What new income tax Bill could mean for you?
For taxpayers, the current Income Tax Act is regarded as being extremely broad and confusing. To comply to the current income tax rules and stay out of trouble with the law, the average taxpayer usually needs help from a tax professional or a chartered accountant.
A committee has been established by the Central Board of Direct Taxes (CBDT) to examine the Income Tax Act. Through the income tax e-filing platform, even regular people can offer recommendations for modifications to the Income Tax Act.
In order to make the income tax regulations easier for taxpayers to grasp, the Income Tax Act has been simplified and replaced with the new income tax bill. It is anticipated that the simplification of income tax laws will decrease errors and create greater understanding among taxpayers.
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Is Direct Tax Code making a comeback?
There have been previous attempts to streamline the income tax legislation. The Direct Tax Code was first presented by the government in 2009. The Income Tax Act was anticipated to be superseded by the Direct Tax Code in order to simplify it. It was anticipated that the Direct Tax Code would lower compliance costs and introduce international best practices. The three pillars served as the foundation for the Direct Tax Code’s recommendations:
- Reduce or eliminate tax exemptions in order to rationalise tax rates.
- Clear up any uncertainty in the income tax laws to prevent lawsuits and lower compliance costs
- Avoid tax evasion from reducing the tax base.
The present income tax rules already incorporate a number of the Direct Tax Code’s recommendations. In contrast to the previous tax regime, the government has implemented a new one that allows fewer deductions but lower tax rates.
However, there are also further aspects of income tax legislation that require simplification. In its 2013 final draft, the Direct Tax Code suggested reducing residential laws.
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The laws that establish an individual’s “residential” status for income tax purposes need to be made simpler. Income tax laws currently divide taxpayers into three groups based on their residential status:
- Resident
- Resident but not ordinarily resident
- Non-resident
Tax professionals believe that the present three residence statuses should be reduced to two. It is anticipated that this will make it easier for taxpayers to determine their residential status within the financial year without needing to look up the effects of the circumstance in previous years.
The process of determining the tax year must also be made simpler. The distinction between an evaluation year and a financial year is one of the most frequent problems that laypeople notice. Not knowing the difference between the two makes it difficult to file income tax returns, pay taxes, and comply with other income tax regulations.
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