Simplifying Tax Laws

The Union Cabinet approved a new Income-Tax Bill that is expected to be tabled in Parliament. The Bill is designed to simplify the complex tax laws and make them easier to understand and follow for both taxpayers and tax authorities.

Key Objectives of the New Income-Tax Bill

• Simplification: One of the primary aims of the new Bill is to reduce complexity. The government intends to cut the number of sections by 25-30%, making the law more concise and easier to understand. Unnecessary provisions, explanations, and provisos have been removed, and the overall word count has been halved.
  • Currently, there are multiple tax regimes applicable in case of various taxpayers (such as companies, individuals, Hindu Undivided Family (HUF) Association of Persons (AOPs) Body of individuals (BOIs), co-operative societies, etc.).
  • The new bill will converge to a single tax regime with an objective of reducing overall compliance burden and providing tax certainty
• Clear Language: The Bill focuses on using simpler language. It aims to eliminate redundancy and complex explanations, replacing them with shorter sentences, active voice, and lucid language for better clarity.
• Avoiding Ambiguities: The new law also addresses interpretation issues that have arisen in the past due to unclear language. This should reduce legal disputes and improve compliance.
• New income tax slabs under the bill: The Budget 2025 announcement proposed these income tax slabs under new tax regime:

• The government has effectively exempted incomes up to Rs 12 lakh by allowing deductions and rebates.
• If passed, the new tax system will take effect from the financial year 2025-26.
• It will apply to taxpayers from the assessment year 2026-27.

Structure of the Bill

• No Excessive Powers for Officials: The Bill maintains that substantive powers—such as the authority to determine income and tax rates—will remain with Parliament. No excessive powers will be given to tax officials.
  • Delegation of powers will be limited, with the procedural details shifted into rules, but major tax decisions will still require Parliamentary approval.
• Combining Related Sections: The new Bill aims to combine related sections of the tax code, which should reduce complexity. By avoiding cross-referencing, each section will be more self-contained, making it easier for taxpayers to follow.
• Public Consultation and Stakeholder Input: The tax department plans to put the Bill through a public consultation process to gather feedback from taxpayers, businesses, and experts. This ensures that any ambiguities can be addressed before the law is enacted, reducing the chances of legal challenges in the future.
• Role of the Standing Committee: Once the Bill is tabled in Parliament, it will be referred to the Standing Committee on Finance, which will initiate further consultations.

Expected Outcomes

• Easier Compliance: The new Bill is expected to make tax laws easier to comply with. By reducing complexity and focusing on clarity, taxpayers will find it simpler to understand their obligations.
• More Efficient Tax Administration: With clearer laws and fewer ambiguous provisions, the tax administration will likely become more efficient, resulting in fewer legal disputes and more streamlined tax collection.
• Improved Transparency: The public consultation process and focus on clear language are expected to increase transparency and reduce confusion among taxpayers.