Finance Ministry set to overhaul Income Tax Act for simplification

The Ministry of Finance is preparing to introduce a revamped Income Tax Act, sources informed Indiatoday.in. This new framework is slated to replace the existing legislation, which has been in effect since 1961, with the goal of simplifying the tax process for both individuals and businesses.

The formal announcement of this new tax law is expected during the Union Budget 2025, scheduled for February. The government's intent is to create a more user-friendly tax regime by reducing the complexity of the current system.

The Finance Ministry is aiming to simplify the Income Tax Act by eliminating approximately 125 redundant sections and subsections. "KISS - Keep It Simple Stupid, that's the motto the Finance Ministry has been following. The goal is to streamline the tax process and reduce compliance burdens," sources revealed.

Key changes in the new act will address outdated provisions and focus on reducing paperwork and streamlining procedures. The ministry has actively sought feedback from tax experts, businesses, and taxpayers, who have voiced strong support for a simpler and less time-consuming tax filing process.

The proposed Income Tax Act will include updates across various areas such as expenditures, investments, assets, liabilities, and sources of income. It will also provide clearer guidelines on income reporting to minimize confusion and errors in tax filings.

Despite the anticipated changes, the new act aims to remain robust and effective in revenue generation while simplifying compliance for taxpayers.

The current Income Tax Act, introduced in 1961, has served as the backbone of India's tax system for over six decades. Although it has undergone numerous amendments, it has grown increasingly complex, prompting calls for a comprehensive overhaul. The new legislation is expected to address these issues and reflect the evolving economic landscape.

In 2020, the government introduced an alternative tax regime, which 72% of taxpayers opted for in the fiscal year 2023-24. This shift underscores the growing demand for simpler tax solutions.