New Income Tax Bill to Simplify Compliance, Reduce Litigation: Nirmala Sitharaman
New Delhi: Finance Minister Nirmala Sitharaman announced that a new income tax bill, aimed at simplifying tax compliance and reducing litigation, will be introduced next week as part of the Union Budget 2025. The proposed direct tax code is designed to be more user-friendly and will streamline existing tax laws.
Sources suggest that the bill may be introduced in the ongoing Parliament session. The initiative was first mentioned in the full Budget for 2024-25, where Sitharaman highlighted the need to simplify the Income Tax Act of 1961, potentially reducing its length by 60%.
The 1961 Act, covering personal and corporate taxes, securities transactions, gifts, and wealth taxation, consists of 23 chapters and 298 sections. The Central Board of Direct Taxes (CBDT) had earlier formed a specialized committee to review and modernize these laws. In October, the government also sought public feedback, receiving around 7,000 suggestions by January.
Key Differences from the Existing Law
The new Direct Tax Code (DTC) is expected to replace the complex Income Tax Act of 1961, significantly reducing its volume and making tax regulations easier to understand. Some major changes could include:
- Abolition of Financial Year (FY) and Assessment Year (AY): This aims to eliminate confusion in tax filing.
- Tax on LIC Payouts: A 5% tax may be introduced on income from LIC policies, which were previously exempt.
- Expanded Tax Audit Eligibility: Company Secretaries and Cost Management Accountants may be allowed to conduct tax audits, previously restricted to Chartered Accountants.
- Standardized Dividend Tax: The new bill may fix dividend tax at 15%, replacing the current slab-based taxation.
- Higher Income Tax Cap: For high earners, tax rates may be standardized at 35%, instead of the current 30% slab plus surcharge.
- Capital Gains Tax Reform: The new law may remove discrepancies in taxation across different asset classes.
- Single Tax Regime: The option to choose between two tax regimes may be eliminated, with fewer deductions and exemptions.
With these changes, the new tax bill aims to create a more transparent and efficient taxation system for individuals and businesses.
