India Set to Rewrite Tax History: What the New Income Tax Act Promises?
||Black & White Digital News||
||Tejveer Singh 26 May 2025||
NEW DELHI: India is on the brink of a major overhaul of its income tax framework with a new Income Tax Act being drafted to replace the archaic Income Tax Act of 1961. The initiative, spearheaded by the Union Finance Ministry, aims to simplify the tax system, enhance compliance, and align it with the contemporary economic environment.
A snapshot of what’s in store, based on inputs and inferences from government briefings:
1. Simplification of Tax Structure
Current Challenge: The 1961 Act is overly complex with numerous amendments, exemptions, and interpretations that create confusion.
What’s New:
The new Act aims for fewer exemptions, a cleaner tax code, and easier compliance.
Focus on plain language drafting to make the Act more accessible and understandable for taxpayers.
2. Rationalisation of Tax Rates
A possible move towards fewer tax slabs and a more progressive rate structure.
Efforts to strike a balance between the old and new tax regimes, with clarity on deductions and exemptions.
Likely incentives for salaried and middle-income groups.
3. Boosting Voluntary Compliance
A taxpayer-friendly approach with:
a. Fewer notices
b. Tech-based scrutiny
c. Faster refunds
d. Integration with AI/ML tools to track tax evasion and analyse income-expense mismatches.
4. Digital and Global Tax Alignment
Better integration with digital economy taxation norms.
Emphasis on transparency in cross-border transactions.
Alignment with OECD/G20 BEPS (Base Erosion and Profit Shifting) framework to curb tax avoidance by multinational companies.
5. Greater Role for Direct Tax Board
The Central Board of Direct Taxes (CBDT) has been tasked with drafting the new law.
Consultation with stakeholders including industry bodies, tax professionals, and economists.
6. Improved Taxpayer Services
Faceless assessments and appeals to continue.
Possibly a new charter for taxpayer rights, modeled on international best practices.
Real-time grievance redressal mechanisms.
7. Integration with GST and Other Laws
Moves to harmonize direct and indirect taxation.
Potentially easier compliance through unified portals and reporting standards.
8. Timeline and Implementation
Drafting expected to be completed during FY 2025-26.
Likely to be introduced in Parliament by late 2025 or early 2026, depending on consultations and legislative priorities.
Possible Game-Changers to Watch:
a) Corporate tax restructuring for startups and SMEs.
b) Capital gains tax overhaul with uniform treatment across asset classes.
c) Inheritance tax or wealth tax might be considered but remains controversial.
The new Income Tax Act seeks to modernize, simplify, and future-proof India’s tax laws. While implementation will require careful handling, the proposed changes could pave the way for higher compliance, reduced litigation, and a more robust revenue system.
