The government has announced a comprehensive review of the Income Tax Act to address several key issues. The Act is notoriously complex and lengthy, making it difficult for taxpayers to understand their obligations. A review aims to simplify the language and structure of the Act to enhance clarity.
Announcing the decision during her Budget 2024 speech, Finance Minister Nirmala Sitharaman announced that it will undertake a comprehensive review of the Income Tax Act to make it easy to read.
“I am now announcing a comprehensive review of the Income-tax Act, 1961. The purpose is to make the Act concise, lucid, easy to read and understand. This will reduce disputes and litigation, thereby providing tax certainty to the tax payers. It will also bring down the demand embroiled in litigation. It is proposed to be completed in six months,” she said.
The review aims to address several key issues, including;
- Litigation and Disputes: The complexity often leads to disputes and lengthy legal battles. By streamlining the Act, the government hopes to reduce litigation and provide greater tax certainty to taxpayers.
- Ease of Compliance: The review aims to make the tax filing process more straightforward and efficient for taxpayers.
- Global Best Practices: The government intends to incorporate global best practices in taxation to modernize the Indian tax system.
By making the Income Tax Act more user-friendly and efficient, the government expects to improve tax compliance, increase tax revenue, and foster a more conducive business environment.
Sitharaman also said the government will come out with SoP (standard operating procedure) for TDS defaults and simplify and rationalise the compounding of such offences.
Direct Taxes Code
Jiger Saiya, Partner, MSKA & Associates, a member firm of BDO International, said, “As the Finance Ministry proposes to undertake a comprehensive review of the Income Tax Act, leveraging the Direct Taxes Code (DTC) presents a strategic opportunity.”
“A critical evaluation of the DTC’s provisions, along with stakeholder consultations, can pave the way for a modern and efficient direct tax regime, focusing on simplification of tax law, automating compliance, reducing litigation and enhancing the ease of doing business in India,” Saiya added.
What Is the Income Tax Act of 1961?
The Income Tax Act of 1961 is the primary legislation in India that governs the levy, administration, collection, and recovery of income tax. Here are some key points about the Act:
The Act is divided into various chapters, each dealing with different aspects of income tax. It contains several sections, each addressing specific provisions.
The Act includes schedules that provide detailed information on various aspects.
The Act provides various deductions and exemptions, such as under Sections 80C, 80D, etc., to encourage individuals and businesses to save and invest in certain sectors like housing, insurance, education, and infrastructure.
The Act lays down rules for the taxation of corporate entities, ensuring that businesses contribute a fair share of their profits to the national exchequer. It also includes provisions for tax audits, transfer pricing, and international taxation.
The Act provides a legal framework for tax administration, including filing returns, assessment procedures, tax collection, and penalties for non-compliance. This ensures that taxpayers adhere to the tax laws and contribute their fair share to the economy.
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