The Union Budget 2025 is expected to bring significant changes to India's income tax framework, with the long-awaited implementation of the Direct Tax Code (DTC) marking a major step toward overhauling the country's direct tax system. The DTC has been a long-standing demand of economists and industry experts, as India's income tax laws have not undergone substantial revisions since the Income Tax Act of 1961. The proposed reforms aim to modernize the outdated framework, streamline exemptions, rationalize tax slabs, and introduce measures to enhance voluntary compliance.
In preparation for the reform, the Central Board of Direct Taxes (CBDT) has set up 22 specialized sub-committees, comprising income tax officials, to review and simplify various aspects of existing tax laws. The committees are tasked with aligning the proposed changes with global best practices, improving ease of compliance for taxpayers, and bolstering revenue efficiency for the government.
Finance Minister Nirmala Sitharaman, in her Union Budget 2024-25 speech, emphasized the government's commitment to simplifying direct taxation in India. She assured that these changes would reduce disputes and litigation, and provide greater tax certainty for taxpayers. As part of the ongoing review process, the Income Tax department has received 6,500 suggestions from stakeholders, primarily focused on streamlining income tax rates and simplifying the corporate tax structure.
One key suggestion is the introduction of a single flat corporate tax rate, eliminating the need for surcharges and cess. While such a change is under consideration, sources indicate it is unlikely to be announced in the upcoming budget.
Officials involved in the review process have indicated that simplifying the language of the Income-tax Act is a priority. Currently, the Act is over 300 pages long, with many sections deemed redundant. These sections are likely to be removed to ensure a more concise and efficient tax code.
The government's efforts to simplify tax laws and reduce litigation are aimed at making India's tax system more transparent and taxpayer-friendly. Experts are anticipating potential changes, such as adjustments to tax slabs, simplified filing procedures, and measures to address the high rates of litigation in tax matters.
As the committees prepare to submit their findings in the coming weeks, all eyes are on the Finance Ministry's response to the Union Budget presentation scheduled for February 2025. With the DTC reforms, India is poised to take a significant step toward a more modern and equitable tax system that will shape the nation's economic landscape for years to come.
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