The 63-year-old Income Tax Act is poised for a major overhaul, with preparations underway to introduce a new law. A bill regarding this change could be presented during the upcoming budget session. The existing law has grown increasingly complex, with many provisions now considered outdated. However, the government is also facing concerns about potential challenges as it seeks to implement this reform.
New Direct Tax Law in the Works
Finance Minister Nirmala Sitharaman is set to introduce a bill for a new direct tax law during the budget session. The proposed law aims to simplify the provisions, remove unnecessary clauses, and use more accessible language for the average citizen. Sources have stated that the committee overseeing the changes is debating whether the new law should be structured in two or three parts. While the government had earlier indicated plans to release a draft of the law for public input, it has decided to move forward with a strong approach amid growing criticism of the current, complex tax framework. The bill will be introduced in the budget, and future amendments may be made based on feedback from taxpayers and experts.
Over the last six to eight weeks, officials from the Finance Ministry and the Prime Minister’s Office have collaborated closely with the expert panel to prepare the bill in time for the budget presentation. Sitharaman first announced this plan in the 2024 budget, and she is expected to mention it in her budget speech on February 1. However, it is still uncertain whether the bill will be presented during the first or second part of the session.
The Government’s Concerns
This marks at least the third attempt to revise the Income Tax Act since the introduction of the Direct Tax Code Bill in 2010. The Modi government had formed an expert panel, but its report was not made public, and many of its recommendations were not accepted. The new committee has been tasked with removing outdated provisions from the old law. Over the years, many sections of the Income Tax Act have become obsolete due to various deletions and changes.
One major challenge is the language of the proposed law. Officials acknowledge that the language used could be difficult for many citizens to understand. As a result, the committee has been instructed to ensure the language is as clear and straightforward as possible. While the new law does not introduce any entirely new issues at present, officials have warned that the simplification of language may lead to litigation, as taxpayers may seek new interpretations of various provisions.
