Will Budget 2025 lay the roadmap for a simplified income-tax system?

The central government should consider simplifying tax return filing procedures in Budget 2025

Like earlier budgets, this year’s proposals are also expected to be guided by the concepts of “simplicity” and “efficiency” because the Centre is in the process of revamping the Income Tax Act, bit by bit.

Multiple amendments such as the recent rationalising of the capital gains regime, withholding tax rates and a no-deductions tax regime point to the effort.

Disincentivising the old regime?

Taxpayers can expect changes that will make the old tax regime less beneficial than the concessional tax regime. This can happen either by restructuring the tax slabs/rates in the concessional tax regime while leaving the old regime unchanged, as has been done in the past, or just scrapping the old regime.

The current law of taxing the notional rent from the third property may be eliminated, as a property tax is already in place. Besides, determining the notional rent is subjective and a tedious process. So, the additional tax burden on the individual of taxing notional rent may be removed.

It is a well-known fact that complicated tax compliances put a huge cost burden (in terms of time and money) on individual taxpayers, as they struggle with tedious paperwork, understand complicated provisions, engage tax professionals for guidance, etc.

It also weighs down the efficiency of the tax administration — verifying the genuineness of claims and tax filings, keeping track of assessments, demands, delays, refunds, etc. Lower tax collection but an expensive compliance process.

Keep all this in mind, taxpayers are hoping for the budget to make compliance simpler. For example, the independent tax compliance system of administering payments to non-resident Indians (NRI) may be merged with that for resident payees.

At present, one needs to obtain TAN, file a separate form, create different login, etc to complete compliances for the NRI landlord. For the resident landlord, they can directly file the withholding tax return and pay taxes online via their e-filing account.

Also read: What NRIs need to know about Indian income tax rules

Ease the e-filing process

Similarly, for non-residents who do not have Aadhaar in India and are based outside the country, the deadline of 30 days for ITR-V verification may be a close call, especially when it is summer break in August in many countries.

Moreover, when the effort is to go paperless, sending a hard copy of the document makes little sense.

The government may introduce a facility and assign a PIN or an electronic verification code (EVC) to such individuals with no Aadhar and no Indian bank account. This PIN or EVC can then be used to e-verify the returns.

Optimal use of artificial intelligence (AI) and other technologies can help government achieve the above seamlessly.

The growing reliance on technology has indeed made our taxation process relatively less complicated, especially with annual information statement (AIS), TIS, and other avenues.

Here’s hoping that the Budget 2025 will take another step towards making the Indian tax system simpler and more efficient.