“As part of the review, the revenue department is currently focusing only on easing the language and is not in favour of changing any tax rates,” sources added.
Sources also stated, “the review of the existing Income Tax Act, 1961, is also going to ease certain penal provisions, which will reduce litigation along with improving overall litigation management as a key objective of this exercise.”
To conduct this review, the CBDT—the apex board responsible for the formation and implementation of income tax laws in the country, working under the aegis of the revenue department of the finance ministry—formed an internal panel currently undertaking a holistic review of the Income Tax Act, 1961.
“The panel is considering providing clarity in provisions via simplified interpretations. It is also in favour of adding FAQs for absolute clarity in assessing provisions’ intent for both taxpayers and officers,” sources added.
However, “whether the review will be presented in the form of a new act or introduced through amendments is something the government has not yet decided,” sources said.
Additionally, sources indicated that “the review may result in major easing in the provisions of TDS, TCS, capital gains, and clarifications on issues like taxpayer classification and income sources.”
The government aims to present the findings and proposals from the direct tax laws review in the upcoming Budget 2025 in February.
Discussing the review, Akhil Chandna, Partner, Direct Tax, Grant Thornton Bharat, says, “The forthcoming budget in India is anticipated to unveil the new Direct Tax Code 2025, a development that has generated considerable interest and discussion. Some of the key changes likely to be introduced in the direct tax code includes—Streamlining tax filing by reducing the number of sections and incorporating more schedules, simplifying taxpayer classification to residents and non-residents, eliminating categories such as ROR and RNOR., eliminating most deductions and exemptions to close loopholes and ensure a fairer tax system, expanding the scope of Tax Deducted and Collected at Source (TDS/TCS) to cover almost all income types, promoting regular tax payments and reducing evasion, taxing capital gains as regular income, which may result in higher taxes for some but ensures equal treatment of all income types, abolishing the concepts of “Assessment Year” and “Previous Year”, using only the “Financial Year” for tax filing, renaming income categories for clarity, with “Income from Salary” becoming “Employment Income” and “Income from Other Sources” becoming “Income from Residuary Sources.”
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