The Finance Ministry is reportedly not planning to introduce the new Income-Tax Bill during the Budget 2025 session of Parliament. Finance Minister Nirmala Sitharaman had previously announced a review of the existing Income-Tax Act during her budget speech in July 2024. The review process is being carried out by an internal committee led by Chief Income-Tax Commissioner V.K. Gupta, which is tasked with revisiting and revising the Income-Tax Act, 1961, to make it more user-friendly, simplified, and easier to navigate for taxpayers.
According to a report by Business Standard, the committee is expected to submit its findings before the Union Budget is presented on February 1, 2025. However, it is unlikely that the new Income-Tax Bill will be enacted immediately during the Budget session. The process of drafting the new legislation will be based on the committee’s recommendations, with input from the Ministry of Law. After the draft Bill is prepared, it will be referred to the Standing Committee on Finance for further scrutiny and feedback.
The review of the Income-Tax Act was initially expected to lead to the introduction of the amended Bill during the 2025 Budget session. However, sources indicate that due to the tight timeline—since the committee’s six-month review period concludes in January 2025—it will take longer to draft, review, and finalize the new Bill. As a result, the introduction of the new Income-Tax Act will likely happen after the Budget session.
Focus on Simplification, Not Tax Rate Changes
One of the most important aspects of the review is that the committee is not expected to propose any changes to income tax rates. The primary objective of the review is to simplify the existing legislation, which is considered complex and cumbersome, by making it more concise, transparent, and easier to understand for taxpayers and businesses.
A senior government official stated that the review committee’s focus is on simplifying various sections of the Income-Tax Act, especially those that may have become redundant or overly complicated. The committee is expected to submit its final report by mid-December 2024, with 23 individual reports, each addressing a specific chapter of the Act, already submitted for review. These reports cover a range of topics, including compliance, exemptions under Section 10 (which includes provisions for house rent allowance and leave travel allowance), income from trusts (Sections 11-13), penalty provisions, and TDS/TCS rules.
Key Areas Under Review
The Income-Tax Act of 1961, which traces its roots back to 1922, contains 298 sections and 23 chapters. The review committee is particularly focused on simplifying the following areas:
- Compliance: Ensuring that the rules and regulations are clear and easily understood by taxpayers to encourage timely and accurate filings.
- Exemptions under Section 10: This section includes exemptions for specific income categories, such as house rent allowance (HRA) and leave travel allowance (LTA). The committee will assess whether these exemptions can be streamlined or clarified.
- Income from Trusts (Sections 11-13): The rules governing income earned by trusts and charitable organizations are complex. The committee will review these provisions to simplify them.
- Penalty Provisions: The committee will look into the penalty and interest provisions for non-compliance, potentially making them more straightforward and fairer.
- Redundant Provisions: The committee is also examining outdated or unnecessary provisions that may no longer be relevant in the current tax environment.
- TDS/TCS Rules: The committee will review the Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) rules to ensure they are efficient and easy to comply with.
Public Consultation and Feedback
In order to make the Income-Tax Act more accessible and understandable for taxpayers, the committee has also launched an online portal to collect public suggestions. This initiative is aimed at gathering input from individuals and organizations that may have encountered challenges with the existing tax law.
With over 80 officials involved in this massive undertaking, the committee is working intensively to ensure that the review process is thorough and all-encompassing. So far, eight reports have been submitted to the Central Board of Direct Taxes (CBDT), with more reports expected in the coming weeks.
The Income-Tax Act of 1961
The Income-Tax Act of 1961 is a foundational piece of legislation that governs the taxation of individuals, companies, and other entities in India. It outlines the procedures for the imposition, collection, and administration of income tax in the country. The Act is divided into five broad categories, or “Heads of Income,” which include:
- Salaries
- House Property
- Business or Profession
- Capital Gains
- Other Sources
In addition to specifying tax rates based on income levels and taxpayer categories, the Act also outlines deductions and exemptions available to taxpayers, as well as procedures for filing returns, assessments, and the collection of taxes. It also includes penalties and interest provisions for those who fail to comply with the law.
In conclusion, the ongoing review of the Income-Tax Act aims to simplify the existing legislation and make it more accessible to taxpayers. While the new Bill may not be introduced during the Budget 2025 session, it will be a critical step towards improving India’s tax framework in the years to come.
