Income Tax Act review committee report likely by October

The Income Tax Act review is being conducted through 15 specialised sub-committees

The government's planned review of India's decades-old Income Tax Act has made progress, with the review committee expected to submit its report by October, according to two government officials.

Finance Minister Nirmala Sitharaman announced the review of the 1962 law to simplify it in the Budget.

The suggestions of the committee will be part of pre-budget discussions, with a focus on simplifying and rationalising the Act without changing its core intent, the officials said, requesting anonymity. Nearly 30 percent of the Act's volume is likely to be omitted for conciseness. The  suggestions include modifying the existing law instead of replacing it, eliminating redundant provisions, and simplifying complex wording.

The review committee is led by Chief Commissioner of Income Tax VK Gupta.

“It will be a comprehensive review of the Income Tax Act. It will not be a new Act but changes will be made to the existing Act. The intent is to simplify and change the current law without changing the intent. There needs to be enough time for the review report to be discussed and accepted. Thus, the review report will be submitted by October,” one of the officials said.

The review is being conducted through 15 specialised sub-committees that address various chapters and issues under the Income Tax Act. There are committees on compliance, non-profit organisations and income derived from trusts under section 11,12,13, penalty provisions, exemptions under Section 10 such as HRA, LTA, dividends, etc., income tax on businesses, redundancies, income tax searches and TDS/TCS. Recently, a central conclave of all the sub-committees was held in Nagpur.

"Each sub-committee is headed by a Principal Commissioner of Income Tax, with over 80 officials involved in the review process. The committee aims to simplify the language and remove outdated provisions from the current Act,” he said.

"The review committee is working to rephrase complex sections into simpler terms, making the law easier to interpret. Some provisions have become redundant or lost their utility over time, and these will be removed; while some are worded in a complicated way. Some provisions have lost their utility in cases where deduction was available to taxpayers earlier but are still on statute. Since these provisions will be applicable to cases of earlier years, it is likely to be removed in the revised Act. For such cases, the old Act may be considered, those provisions need not come in the revised new Act," the official explained.

Another official emphasised the focus on removing archaic provisions. "Some parts of the Act, such as those related to appellate matters, are outdated and need rationalisation. The goal is to simplify the text of the Act, while keeping the provisions intact."

The review report will be submitted to the Finance Minister Nirmala Sitharaman before being analysed by the Central Board of Direct Taxes (CBDT) and then sent for further legislative discussion.

Last week, the committee held discussions with key stakeholders, including members of the Institute of Chartered Accountants of India (ICAI), industry chambers, Federation of Indian Chambers of Commerce and Industry (Ficci) and Assocham.  The committee will soon open an online portal to invite public comments on the proposed changes, he said.

“CBDT is likely to soon launch a utility to seek public comments online. It is likely to be a separate portal for comprehensive review of the Income Tax Act inviting suggestions,” one of the officials said.

The Act currently has 298 sections.  Through the review process, about 25-30 percent of its volume may be reduced after removing redundancies and simplification, the official added.

The Act is being simplified, but the law is not being made less complex at this point. It’s a textual change as of now. The committee is looking at redrafting the Act to make it simpler to understand, while the provisions remain the same, he said.