Revamped Income Tax Act likely to take over a year to get implemented

The proposed overhaul stems from an extensive review of the current Act, which spans 23 chapters.

India is not yet prepared for the overhaul of its Income-Tax (I-T) Act, as announced by Finance Minister Nirmala Sitharaman during the Union Budget in July 2024. According to sources, the new I-T Act bill, unlikely to be presented in the upcoming Budget Session, will take more than a year to come into effect.

The comprehensive revamp will require the formulation and notification of new rules, forms, and supporting systems, posing significant challenges to operational readiness. Transitioning from the existing framework to the new Act will require careful calibration to ensure compliance and efficiency, sources said.

While the government intends to replace the I-T Act of 1961 with a more modern and simplified framework, the scale of changes needed makes immediate implementation unfeasible.

“It is likely to take more than a year. Systems have to adapt to the changes. Since it will be a whole new Act, it will be much more complex. All rules and new forms have to be enabled, tested, and system-integrated, and that will require time,” a senior government official told Moneycontrol.

The proposed overhaul envisages an extensive review of the current Act, which spans 23 chapters. A dedicated I-T review committee, comprising 23 sub-committees and working groups, is scrutinising each chapter to identify areas for improvement.

“If it were just one or two chapters, amendments could have sufficed. But simplifying all 23 chapters requires a new Act. The process involves revising rules, forms, systems, and utilities for taxpayers—a long and interconnected chain of activities,” the official added.

Back-end system readiness a major challenge

Another source highlighted the technical hurdles involved. “Simplifying 23 chapters is not easy because everything is system-enabled. Once the Act, rules, and forms are revised, we also need to update utilities, test them, and ensure they are user-ready. This process is time-intensive,” the source said.

The Central Board of Direct Taxes (CBDT), which is leading the review, is currently evaluating the reports submitted by the review committees. While minor changes may be introduced in the Finance Bill during the upcoming Budget session, the broader reforms are expected to consolidate into a standalone bill for the new Act.

“Some changes may be introduced in the current I-T Act through the Finance Bill. However, the review committee’s work is likely to culminate in a separate bill. That bill will need more time for implementation because systems must be readied,” the source noted.

The new legislation is also expected to be referred to a select parliamentary committee for detailed examination, which could further extend the timeline for its implementation.

“This is a long process. Everything has to be tested, enabled, and aligned with taxpayer needs to ensure compliance and efficiency,” another source explained.

The modernised I-T Act is anticipated to simplify the tax structure, reduce litigation, and bring India’s tax framework in line with global standards. However, the delay highlights the complexity of overhauling a system that has been in place for over six decades.