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What can we expect from the New Income Tax Bill?
According to sources, the new Bill is expected to be more concise, with fewer sections. The government plans to remove redundant and outdated provisions, as well as combine sections addressing similar issues, making compliance easier. The focus is on simplifying complex language, with sections likely to be shortened and the use of terms like “however” and “except” replacing more difficult legal language. The government aims to make the law more accessible and straightforward.
One of the proposed changes is to present rates, thresholds, and limits in a tabular format rather than in lengthy written paragraphs, making them easier to locate and understand for both taxpayers and tax professionals.
Additionally, the Bill might replace certain legal jargon with simpler terms. However, experts suggest that some terms may be retained, as they are part of definitions established by judicial pronouncements.
The new draft Bill could also address concerns about cross-referencing, which has made the current Act difficult to interpret. By minimizing such references, the government hopes to create a more streamlined and easier-to-understand law.
Another proposal is to include definitions specific to each chapter of the law, so taxpayers and tax practitioners won’t have to search through multiple pages for clarification.
The government is also considering removing long-winded procedural requirements from the Act, with the procedures instead prescribed separately in the Income-tax Rules. This could include the publication of FAQs to address common queries from taxpayers, chartered accountants, and tax practitioners, thereby reducing litigation and providing clearer guidance.
Finally, a new set of rules is being considered, to make them simpler while maintaining their essence. These changes could make it easier for both businesses and individual taxpayers to navigate the system.
What the Industry Wants
The industry has its own set of demands for the new tax code, including:
- Clarity on Group-based Taxation: The industry seeks clarification on the tax treatment of group entities, allowing one entity’s losses to be offset against another’s profits, simplifying compliance.
- Compliance Reduction for Non-Residents: The industry hopes the government will ease compliance requirements for non-resident entities with a business connection in India but no tax liability due to treaty benefits. This would include exemptions from obtaining a Permanent Account Number (PAN) and filing income tax returns.
- Rationalisation of TDS and TCS Provisions: The industry calls for the simplification of TDS (Tax Deducted at Source) and TCS (Tax Collected at Source) provisions, which would reduce the compliance burden for taxpayers.
- Advance Rulings Overhaul: The industry seeks a reworking of the advance ruling process, suggesting that rulings should only be binding on the revenue, allowing taxpayers to litigate issues in the normal course of tax proceedings.
- Negotiated Settlement of Disputes: The industry also advocates for a provision that would allow negotiated settlements of disputes, facilitating faster resolution and reducing litigation costs. This would unlock revenues currently tied up in legal cases.
- Claims and Withdrawals: The industry is asking for the ability to make additional claims during assessment proceedings and withdraw claims without the risk of penalties. This would align assessment proceedings with the existing appellate process and reflect greater trust in taxpayers.
Expert opinions on the Bill
Experts believe that the proposed changes could significantly simplify India’s tax system.
“The Income-tax law certainly needs to be made simpler and more comprehensible and I am happy that the government is finally considering to get a new Bill , which will help in reshaping the existing act into a new act that will be more compact and concise, have less of legalistic jargon and ambiguity and will be easier to comply with, not just for businesses but also for individual taxpayers who often have to rely on tax practitioners for making such compliance. The new law will be an appropriate culmination of past efforts such as the drafts prepared in 2010 and 2019,” said Akhilesh Ranjan, former Member, CBDT and now with PWC.
Sandeep Chaufla, Partner at Price Waterhouse & Co. LLP, comments, “The ongoing review of the Income-tax Act, 1961, seeks to modernise and simplify India’s tax system in line with broader economic goals. It aims to enhance the ease of doing business, reduce ambiguity in interpretations, and improve tax administration and compliance. This will help increase India’s tax-GDP ratio to global levels and support sustainable economic growth. The review will also foster a transparent and efficient tax system that attracts investments and advances the Government’s vision of a Viksit Bharat. The revised income tax law is expected to be clear, concise, consistent, and supplemented with illustrative examples to aid understanding and interpretation by various stakeholders. It will also eliminate obsolete and redundant provisions.”
Sandeep Jhunjhunwala, M&A Tax Partner at Nangia Andersen LLP, adds, “The proposed new legislation could possibly witness material elements around territorial nexus and source-based taxation, considering the rapidly changing economic environment. Rationalisation of the current, fairly complicated capital gains tax regime was another recommendation of the Task Force, which has yet to be actioned upon in Finance Acts but is likely to be considered in the new tax code. Simplification of the capital gains tax regime by minimising the categorisation of capital assets, their period of holding, and related tax rates could be forthcoming. TDS disputes in cross-border transactions is yet another area of concern that the new code could address, potentially easing TDS compliances.”
Is this the first attempt at simplifying the Tax Code?
No, this is not the first time the government has sought to overhaul the Income Tax Act. The Direct Tax Code (DTC) Bill, proposed in its original form in 2010 and 2013, aimed at a significant overhaul of the taxation regime, emphasising simplification of personal and corporate income taxes. Although many elements of the DTC were incorporated into the Income Tax Act over the years, the bill itself never came to fruition.
In 2017, the government under the NDA regime formed a Task Force to review the tax system, which submitted its report in 2019 under the chairmanship of Akhilesh Ranjan. This report recommended substantial changes, including the rationalisation of personal income tax rates, and addressed longstanding issues related to the definitions of income and residence-based taxation. These recommendations are expected to influence the new Bill.
Why is a new tax code needed?
The Income Tax Act of 1961 has been amended numerous times since its inception, leading to a law that has become complex and difficult to interpret. As tax laws evolve globally, the government recognises the need to update the system to better address the practical realities of modern-day taxation. The aim is to provide a clear, consistent, and transparent tax framework that reduces uncertainty and simplifies compliance.
By rewriting the tax code, the government hopes to eliminate ambiguities, reduce litigation, and create a more predictable and fair system for taxpayers and businesses alike. As experts say, sometimes a completely new approach is more effective than constantly patching up an outdated system.
