Budget 2025 to Launch Simplified Income-Tax Act: A Step Toward Tax Modernization

Introduction

The Indian government is set to modernize its tax laws with the introduction of a simplified Income-Tax Act during Budget 2025, to be presented on February 1. This long-awaited reform, spearheaded by Finance Minister Nirmala Sitharaman, is designed to untangle decades of amendments in the current Income-Tax Act, 1961, creating a more accessible, streamlined, and taxpayer-friendly framework.

The revamped draft focuses on addressing complexity without introducing significant policy changes, making compliance easier for both individuals and businesses.

The Need for a Simpler Tax Framework

Over the decades, the Income-Tax Act, 1961, has undergone nearly 3,000 amendments, creating layers of intricate provisions, sub-sections, and cross-references. This has made tax compliance a daunting task, especially for small businesses and first-time taxpayers.

Key objectives of the revamped Act include:

• Plain and clear language to replace overly technical jargon.
• Consolidated provisions to remove redundancies and ambiguities.
• Minimized litigation to offer greater tax certainty for businesses and individuals.

These goals align with the government’s broader aim to make tax laws transparent, predictable, and user-friendly.

Current Progress and Challenges

The draft of the simplified Income-Tax Act has been completed and is under internal review. However, concerns have been raised about the lack of time for stakeholder consultations before the Budget session.

Tax experts emphasize the importance of public engagement to ensure the law reflects the needs of its users. Drawing parallels with the Data Privacy Bill’s public consultation process, experts argue that similar feedback mechanisms could enhance the effectiveness of the revamped tax law.

What Sets This Overhaul Apart?

Unlike past attempts at reform, such as the Direct Taxes Code (DTC) of 2009, the new draft focuses exclusively on simplifying the law rather than making sweeping policy changes. This targeted approach aims to:

• Simplify TDS rates for easier compliance.
• Eliminate outdated provisions that no longer serve taxpayers.
• Group related clauses together to improve the law’s readability.

By prioritizing simplification over policy shifts, the government hopes to minimize resistance while creating a foundation for long-term reforms.

Past Lessons and Future Directions

The current revamp builds on previous reform efforts, particularly the recommendations of the Direct Taxes Code Task Force formed in 2017. While the DTC itself was never legislated, its proposals—such as the General Anti-Avoidance Rules (GAAR) and corporate tax cuts—found their way into the existing law.

This latest effort avoids overhauling the tax structure but instead focuses on streamlining procedures, which is a practical step toward reducing compliance burdens for taxpayers.

What Does This Mean for Taxpayers?

Taxpayers have high hopes for the revamped law, expecting significant improvements in areas like:

• Clarity in tax provisions, making it easier to understand obligations.
• Simplified TDS rates to reduce errors and penalties.
• Fairer treatment of minor defaults to avoid undue penalties.

However, experts caution that merely rewriting the law won’t solve systemic issues. Complementary reforms, such as better training for tax officers and faster grievance redressal mechanisms, are equally critical for success.

A Major Step Toward Simplified Compliance

The revamped Income-Tax Act marks an important milestone in India’s journey toward modern tax administration. By focusing on clarity, accessibility, and reduced complexity, the government is taking a pragmatic approach to reform.

While it won’t introduce major policy changes, the simplification effort is expected to make compliance less burdensome, especially for small businesses and individual taxpayers.

Final Thoughts

The unveiling of the Simplified Income-Tax Act in Budget 2025 is more than just a legal update; it’s a step toward building a tax system that aligns with India’s economic aspirations. As taxpayers and businesses await its rollout, this reform promises to set the stage for a more efficient and inclusive tax framework in the years to come.