The primary objective of the review committee is to simplify and modernize the Income Tax Act, making it concise, user-friendly, and accessible for taxpayers.
The Finance Ministry is reportedly unlikely to introduce the much-anticipated new Income Tax Bill during the Budget 2025 session of Parliament. Earlier this year, Finance Minister Nirmala Sitharaman announced a comprehensive review of the Income-Tax Act, dating back to 1961, during her budget presentation in July 2024. However, the process appears to be on a slower track than initially anticipated.
V.K. Gupta Committee to Submit Report by January 2025
According to a report by Business Standard, the internal committee led by Chief Income-Tax Commissioner V.K. Gupta has been tasked with reviewing the current Income-Tax Act. The committee is expected to submit its findings to the government before the Budget is presented on February 1, 2025.
An official stated, “The Bill is unlikely to be enacted immediately during the Budget session. Based on the V.K. Gupta committee’s report, the legislation will be drafted in consultation with the law ministry. Once the draft Bill is ready, it will be referred to the Standing Committee on Finance for detailed scrutiny and feedback.”
Although the committee’s six-month timeline ends in January 2025, expectations of introducing the revised Income Tax Act in the Budget session appear premature. The drafting and subsequent review phases will require additional time.
Simplifying the Income-Tax Act
The primary objective of the V.K. Gupta-led review committee is to simplify and modernize the Income-Tax Act, making it concise, user-friendly, and accessible for taxpayers. According to recent updates, the committee is not expected to propose any changes to tax rates. Instead, it is focused on streamlining the legislation to enhance clarity and reduce complexities.
A senior government official emphasized, “The committee is examining every section of the Act to simplify it, remove redundant provisions, and make it easier for taxpayers to comprehend. However, no changes in tax rates will be suggested.”
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Progress on the Review Process
The Income-Tax Act, originally formulated in 1922 and revamped in 1961, currently consists of 298 sections and 23 chapters. To address the challenges posed by its complexity, the review committee is preparing 23 individual reports, each dedicated to a specific chapter of the Act. The aim is to finalize all reports by mid-December 2024.
So far, eight reports have been submitted to the Central Board of Direct Taxes (CBDT), with intensive efforts underway to complete the remaining drafts. Key focus areas of the review include:
- Compliance simplifications
- Exemptions under Section 10 (such as house rent allowance and leave travel allowance)
- Income from trusts (Sections 11–13)
- Penalty provisions
- Removal of redundant provisions
- TDS/TCS rules
Public Feedback and Collaboration
To ensure inclusivity, the committee has launched an online portal inviting public suggestions. This initiative aims to incorporate taxpayer feedback and make the revised Income-Tax Act more comprehensible and accessible. Over 80 officials are actively involved in this comprehensive review process, reflecting the government’s commitment to addressing the needs of taxpayers.
An Overview of India’s Income Tax System
India’s income tax system forms the backbone of the nation’s financial infrastructure, enabling the government to mobilize resources for economic growth and public welfare. This comprehensive framework is structured to ensure fairness, transparency, and efficiency in tax administration. Below is a detailed exploration of its key components:
- Charge of Income Tax
Income tax is imposed on the total income earned by individuals, Hindu Undivided Families (HUFs), companies, firms, associations of persons (AOPs), bodies of individuals (BOIs), and other entities. This taxation is crucial for funding essential services like education, healthcare, defense, and infrastructure projects, fostering overall national development. The levy is based on a progressive structure, ensuring that higher income brackets contribute more.
- Heads of Income
The classification of income into distinct heads simplifies assessment and compliance:
- Salaries: Encompasses wages, gratuities, allowances, perquisites, and other monetary or non-monetary benefits derived from employment.
- Income from House Property: Covers rental earnings from owned properties and the notional rent on second homes kept vacant.
- Profits and Gains from Business or Profession: Includes income generated from entrepreneurial ventures, professional practices, or consultancy services.
- Capital Gains: Refers to profits from the sale or transfer of capital assets, categorized into short-term and long-term gains based on the holding period.
- Income from Other Sources: Accounts for miscellaneous earnings such as interest, dividends, gifts, winnings from lotteries, or betting activities.
- Tax Rates and Slabs
The income tax rates in India are determined by the Finance Act passed each year. Key highlights include:
- Individual Taxpayers: Progressive slabs, with higher rates for increased income levels.
- Senior and Super Senior Citizens: Relaxed thresholds and slabs to accommodate fixed incomes during retirement.
- Corporate Tax: Varies for domestic companies, foreign companies, and entities availing special incentives under government policies.
- Deductions and Exemptions
Taxpayers can avail of multiple deductions and exemptions to reduce their taxable income and encourage savings and investments. Some notable ones are:
- Section 80C: Investments in Public Provident Fund (PPF), Employee Provident Fund (EPF), National Savings Certificates (NSC), Equity Linked Savings Schemes (ELSS), and life insurance premiums.
- Section 80D: Deductions for health insurance premiums paid for self, family, and parents.
- House Rent Allowance (HRA): Exemptions on rental payments for salaried employees.
- Education Loan Interest (Section 80E): Tax relief for repaying interest on higher education loans.
- Section 10 Exemptions: Cover allowances like Leave Travel Allowance (LTA) and agricultural income.
- Income Tax Filing and Assessment Process
Filing and assessment processes ensure systematic collection and verification of taxes. Key stages include:
- Return Filing: Taxpayers file their Income Tax Returns (ITR) using prescribed forms, either online or offline.
- Assessment: Tax authorities verify the filed returns for accuracy and compliance.
- Tax Refunds and Adjustments: Refunds are processed for excess taxes paid, while outstanding liabilities are adjusted as necessary.
- E-Filing and Automation: The adoption of technology has streamlined the filing process, enhancing user experience and reducing errors.
- Penalties, Interest, and Compliance Enforcement
The Income Tax Department enforces stringent measures to ensure compliance:
- Penalties: Imposed for late filing, incorrect reporting, or non-disclosure of income.
- Interest Charges: Applicable on overdue tax payments and under-reporting of income.
- Prosecution: Severe cases of tax evasion may lead to legal action, including imprisonment.
- Role of Technology in Tax Administration
The integration of digital platforms has revolutionized India’s income tax system:
- Income Tax Portal: A one-stop solution for filing returns, tracking refunds, and accessing tax-related services.
- Faceless Assessments: Minimized human interaction, ensuring impartiality and reducing grievances.
- Taxpayer Charter: Aims to build trust by safeguarding taxpayer rights and ensuring timely services.
- Government Initiatives and Reforms
Recent reforms underscore the government’s commitment to simplifying taxation:
- GST and Income Tax Integration: Improved tracking of transactions for better compliance.
- Reduction in Corporate Tax Rates: Boosting economic activity and encouraging investment.
- Vivad Se Vishwas Scheme: Resolution of long-pending disputes.
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Conclusion
While the introduction of the new Income Tax Bill during Budget 2025 seems unlikely, the government’s efforts to overhaul the existing Income-Tax Act signify a pivotal step toward a simpler and more efficient tax framework. Taxpayers and stakeholders are encouraged to contribute their insights to the ongoing review, fostering a more transparent and taxpayer-friendly legislative process.
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