63-Year-Old Income Tax Act Likely To Be Overhauled In The Budget

Budget 2025 may make history as there is a likelihood that the government will introduce a new direct tax law, according to recent media reports. At present, tax laws pertain to the Income Tax Act 1961. The proposed legislation will aim to simplify existing provisions, do away with redundant ones, and make the language easy to understand for the general public. 

Several sections have been made redundant over the years which are set to be dropped. 

The idea is to simplify the legislation and also cut down the volume by about 60 per cent. In fact, during Budget 2024, FM Nirmala Sitharaman mentioned that a comprehensive reassessment of income tax laws would happen within six months. 

According to media reports, the committee that is in charge of revising the law is considering whether the new law should be divided into two or three parts. Initially, there was a plan to release the draft for public feedback, but that is not on the cards any longer. 

The new income tax law will be introduced in the budget session of the parliament. It will be a new law and not an amendment to the existing act. The new law is to be brought into parliament in the second half of the budget session after it is vetted by the law ministry. 

The idea is to send a strong message at a time when the income tax laws have faced strong criticism over complex tax laws. The public has also been complaining that the middle class has to pay a very high amount of tax. 

In the past, there have been attempts made to introduce a new direct tax law. The new Direct Tax Code Bill was introduced in 2010 with the aim of overhauling the Income Tax Act 1961. But it did not take off as it wanted to do away with exemptions and also include foreign tax rules which were deemed complex. In 2017 the government set up a panel which was led by a  Central Board of Direct Taxes (CBDT) member and a team of external experts who submitted a report to the FM. However, the report was never made public.

However, in the last budget, a further announcement was made to simplify tax laws, and an internal committee of officers was set up. 

While a simplified language will make it easier for the public to understand, it could also lead to a source of litigation as the new language may need to be interpreted correctly in several cases.