Review of Income Tax Act Put On Fast-Track Due to January Deadline

The Revenue Department of the Finance Ministry is looking to expedite the comprehensive review of the Income Tax Act of 1961, with the goal of completing it by January, ahead of the Union Budget the following month, according to officials familiar with the matter.

The committee, which is chaired by Chief Commissioner V K Gupta, is working extensively on issues and challenges to the decades-old Income Tax Act in order to make it simpler and more concise.

The panel is looking into rationalising exemptions and deductions, eliminating duplications, aligning computing methods with international standards, and expediting the tax appeals process.

“Up to 120 sections, sub-sections, and clauses are expected to be removed from the current Income Tax Act of 1961”, according to the official cited above.

Sections focus on exemptions or deductions in telecom, special economic zones, and capital gains, he said.

The panel may suggest a separate annexure for outdated sections for referral purposes in pending cases before various judicial bodies across the country.

The official stated that the introduction of a direct tax code (DTC) is unlikely, and the focus will be on simplifying the current Act.

“The exercise is ongoing. It has not yet been decided whether a new draft will replace the present Act or if the Act will be revised through amendments,” the official stated.

On DTC, he stated that the draft report was submitted in August 2019 and that since then, numerous changes have been made to the Act, requiring a new perspective.

In 2017, the NDA government formed an expert team to review the Income Tax Act and draft a code proposing changes to the direct tax laws. The task force has produced a report suggesting numerous fundamental revisions to the Act.

Meanwhile, the panel may request assistance from the Law Ministry in creating the simplified Act, they said.

Finance Minister Nirmala Sitharaman announced changes to the Income Tax Act in the July 2024 Budget, aiming to eliminate disputes and make the act more straightforward and concise.

The chairman of the Central Board of Direct Taxes, Ravi Agrawal, previously stated that the committee is looking into the best worldwide practices that can be implemented. It is also looking at reducing redundancy in existing law and identifying and removing sections that have expired.

According to Agrawal, the committee is reviewing the “problem statement” provided in the most recent budget. It is attempting to determine the “best way forward” in enacting a new direct tax law, he stated.

The Income Tax Act of 1961 began its journey in 1922. It has 298 sections, 23 chapters, and other provisions in its current form from 1961.

The Union government would have the Tax Act’s tax code, or at least some of it, put in basic and easy-to-understand language, Sitharaman previously stated.

“This Budget 2024-25 has made very clear statements that there shall be four major objectives that we would like to achieve: simplifying tax, improving taxpayers’ services, providing tax certainty and reducing litigation,” stated the minister.