The government’s announcement to revamp the income tax system in India was one of the key highlights of the Union Budget 2024 presented by Finance Minister Nirmala Sitharaman on July 23. The finance minister had declared plans to replace the outdated Income Tax Act, 1961, with a simpler and more modern tax code. This ambitious move was expected to bring sweeping changes to India’s taxation framework. However, sources now indicate that the implementation of these new laws is likely to be delayed beyond 2025.
Why the New Tax Code Needs More Time
A senior official has shared that the transition to a new Income Tax Act involves extensive groundwork. Here’s why the process is taking longer than anticipated:
- Extensive Reviews: A high-level committee comprising 23 sub-committees is reviewing all 23 chapters of the existing Income Tax Act. Their task is to ensure every aspect is aligned with current economic realities and global standards.
- System Overhaul: Implementation of the new laws will require creating new rules, forms, and supporting digital systems. Integrating these changes with the current tax infrastructure is a highly technical process.
- Gradual Transition: The government wants a smooth transition to avoid disruption for taxpayers. This involves carefully phasing out the old system while introducing the new framework.
What’s Next for Taxpayers?
The Central Board of Direct Taxes (CBDT), which is overseeing the review process, is in the final stages of analyzing committee reports. Despite this progress, sources suggest that the bill for the new tax laws is unlikely to be presented in Parliament during the Budget 2025 session. Minor amendments to existing tax rules might be included in the finance bill, but a complete overhaul could take over a year.
Challenges in Drafting the New Income Tax Act
Creating a comprehensive new law to replace the Income Tax Act, 1961, involves addressing several challenges:
- Simplification vs. Completeness: While the aim is to simplify tax laws, the government must ensure that the new act covers all possible scenarios without loopholes.
- Taxpayer Adaptation: Taxpayers will need time to adapt to new rules, forms, and compliance requirements. Awareness campaigns and training sessions might be necessary.
- Technological Upgrades: The transition will require robust IT systems to handle changes in filing, processing, and refunds under the new law.
Government’s Vision for the New Tax Code
The proposed tax reforms aim to modernize India’s tax structure and make it more taxpayer-friendly. By introducing straightforward rules, the government hopes to reduce litigation, improve compliance, and boost revenue collection. However, officials have stressed that rushing such significant reforms could lead to errors, hence the need for thorough preparation.
Key Takeaways for Taxpayers
Taxpayers can expect incremental updates rather than a complete transformation in the near term. For Budget 2025, minor tweaks to improve existing provisions might be the most immediate changes. Those looking forward to a simplified tax system will need to wait until the new framework is fully ready, which is expected to take beyond a year from now.
