Opinion
Simplify, simplify, simplify: The mantra of India’s Income Tax Bill
Summary
- A well-drafted tax law will play a key role in contributing to our shared vision of a Viksit Bharat. However, its success hinges on complementary reforms in other areas, particularly in tax administration and dispute resolution.
In an era that glorifies radical and dramatic change, the quiet power of incremental reform tends to be overlooked. But often, it is these methodical and ostensibly less glamourous reforms that have a more meaningful and lasting impact. The new Income Tax Bill, 2025, falls into this category.
There are some substantive changes to be sure, but the focus of the new Bill is more towards making the law more concise, lucid and easy to understand.
In India, and in many other countries, the spotlight has long been on tax rates, treaties, anti-abuse norms, dispute resolution mechanisms and other tax policy changes.
However, the introduction of the new Bill, with its strong emphasis on clarity in structure and drafting, will undoubtedly bring welcome attention to the importance of having well-structured and clearly drafted laws.
Also Read: Mint Quick Edit | Finally, a tax law we may be able to grasp
Many professionals have spent decades mastering the intricacies of the current law, taking pride in their deep understanding of its quirks and oddities. For instance, how many people know that a deduction can be found in a chapter meant for exemptions, or that the computation of income for members of an Association of Persons is contained in a chapter on income aggregation and loss set-off?
While this knowledge can be satisfying, it is undeniable that the Income Tax Act has become increasingly complex and challenging to navigate, particularly for those not well-versed in its mysteries.
This is where the new Bill will help. The provisions are properly organised, redundancies are eliminated and the language is sought to be simplified. There are also quite a few areas where the new Bill benefits taxpayers. For instance, currently, a taxpayer can obtain a certificate from the tax authorities allowing the payer to deduct tax at a lower/nil rate in respect of certain specified sums and incomes. The new Bill allows this for all sums and incomes.
Also Read: India’s Income Tax Bill sets the stage for significant reforms
Similarly, over the past few years, several provisions were enacted to enable the Central Board of Direct Taxes (CBDT) to issue guidelines that would be binding on the taxpayer and tax authorities alike. These powers have largely been done away with. The move to replace the somewhat archaic concepts of previous year and assessment year with ‘tax year’, will also help modernise our tax system.
Some changes, however, may lead to unintended consequences and may need to be addressed as the Bill goes through the legislative process. For instance, the scope of transfer pricing provisions could stand significantly widened on account of changed language in the definition of associated enterprises. When enacted, the new law is expected to come into force from 2026-27. This should give taxpayers and other stakeholders sufficient time not only to engage with the government, but also to prepare for the changed law.
The government too has its work cut out for it, in terms of issuing new rules and forms and making changes to the IT architecture.
Also Read: India’s new income tax bill: It’s more concise and makes for a friendly tax law
A well-drafted tax law will play a key role in contributing to our shared vision of a Viksit Bharat. To this end, the introduction of the new Bill is commendable. However, its success hinges on complementary reforms in other areas, particularly in tax administration and dispute resolution.
One hopes that this new law will mark the first of many crucial reforms needed to strengthen our tax system.
The author is partner, Price Waterhouse & Co.
