India’s six-decade-old tax laws are in for a revamp. Govt wants real-world solutions.

New Delhi: India’s direct tax authority has sought feedback from the public on revamping the six-decade-old Income Tax Act so it’s easier to comprehend and comply with, while reducing the scope for disputes and erasing red tape.

The Central Board of Direct Taxes (CBDT) said in a statement on Monday that an internal committee set up to review the Income Tax Act has sought public feedback on four categories: simplification of language, litigation reduction, compliance reduction, and redundant/obsolete provisions.

The government intends to make the tax law less complicated while at the same time improving the ease of doing business and removing sections that have lost their relevance. The Income Tax Act has 298 sections arranged in 23 chapters. It also has 14 schedules. 

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Public feedback will allow the government to align the proposed revamp of the tax laws with industry expectations. CBDT said the income tax department’s website will accept suggestions from Sunday, 13 October. This will give the government enough time to draft a Bill by the next budget session, in February. 

In the past, when the government examined the need for a direct tax code, key suggestions were incorporated into the Income Tax Act itself rather than into a new tax code.

Experts welcomed the move. “The focus should be on simplification and removing outdated clauses and sections. Reducing litigation and compliance burden on taxpayers is another area which should be looked into. It is easy for the taxpayers to participate in this process as the suggestions can be submitted online,” explained Amit Maheshwari, tax partner at AKM Global, a tax and consulting firm.

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Accounting for real-world challenges

Referring to finance minister Nirmala Sitharaman’s budget announcement on the tax law revamp, CBDT said its goal was to make the law concise, clear, and easy to understand, which will reduce disputes, litigation, and provide greater tax certainty to taxpayers. 

Crowdsourcing of ideas is aimed at addressing the practical challenges faced by taxpayers, accountants, and legal professionals, ensuring that their real-world experience will help shape the reforms, said Maneesh Bawa, partner at Nangia Andersen India, a business advisory firm.

By inviting inputs on the four specified areas, the government aims to make the tax system more efficient and user-friendly, ensuring long-term benefits for all stakeholders, said Bawa.

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Reducing litigation has been a priority for the government as often high-pitched assessments end up in courts, which take up resources and time but result in limited recovery of alleged dues. This leads to large amounts being classified as tax arrears, which are difficult to recover and pose a headache to the government. 

Over the years, the tax department has raised the monetary threshold for filing appeals in higher courts to reduce litigation. In the Union budget for 2024-25, the government raised the monetary limit for filing appeals related to direct taxes, excise duty and service tax in the tax tribunals, high courts and the Supreme Court.