Revamped Income Tax Act expected to take more than a Year to implement

India is not yet prepared for the revamp of its Income Tax Act, which Finance Minister Nirmala Sitharaman promised during the Union Budget in July 2024.

As per the sources, the new Income Tax Act bill, which is unlikely to be introduced during the upcoming Budget Session, will take more than a year to go into force.

The extensive revamp will include the development and introduction of new rules, forms, and supporting systems, generating major challenges to operational readiness. Transitioning from the current framework to the new Act will necessitate careful calibration to assure compliance and efficiency, according to sources.

While the government plans to replace the Income Tax Act of 1961 with a more modern and streamlined structure, the magnitude of the changes required makes quick adoption impossible.

“It’s likely to take more than a year. Systems must adapt to the changes. Because it will be a new Act, it will be much more complicated. All rules and new forms must be enabled, tested, and system-integrated, which will take time,” a senior government official explained.

The planned revision includes a thorough examination of the current Act, which has 23 chapters. A specialised Income Tax review committee, consisting of 23 sub-committees and working groups, is reviewing each chapter to suggest opportunities for improvement.

“If there were only one or two chapters, amendments would have sufficed. However, simplifying all 23 chapters necessitates a new Act. The procedure entails changing rules, forms, systems, and utilities for taxpayers—a lengthy and interwoven series of actions,” the official added.

The Central Board of Direct Taxes (CBDT), which is overseeing the review, is currently examining the reports provided by the review committees. While small changes may be made to the Finance Bill during the upcoming Budget session, the larger improvements are expected to be consolidated into a separate Bill for the new Act.

The new law is also expected to be forwarded to a select parliamentary committee for a thorough examination, potentially extending the timescale for implementation.

The modernised Income Tax Act is expected to simplify the tax system, minimise litigation, and align India’s tax regime with global standards. However, the delay demonstrates the complexities of altering a system that has been in place for more than six decades.