A fresh look at income tax: Will the review lead to real change?
In the budget for 2024-25, Union finance minister Nirmala Sitharaman had announced a comprehensive review of the Income Tax Act, aiming to make it concise, lucid and easier to understand.
According to Sitharaman, with these reforms the finance ministry seeks to reduce disputes and litigation, providing tax certainty to taxpayers.
While all these objectives are commendable, the key question is whether the procedure being followed will achieve the desired results.
In line with this announcement, the chairman of the Central Board of Direct Taxes (CBDT) said that an internal committee of Income Tax Department has been established to review redundant clauses and adopt best global practices to simplify the Act for taxpayers.
The panel is also looking at eliminating redundancies and identifying outdated clauses that can be removed. It aims to find the “best way forward" for implementing a new direct tax law for the country.
While the goals of this exercise are commendable, past experience offers little hope. Many such committees—some consisting of solely of tax officials, while others including both experts and officials—were set up but rarely saw the recommendations being implemented.
Committees with external experts and tax officers had produced some of the most comprehensive reports, but their excellent suggestions were seldom acted upon by government.
On the other hand, internal committees set up for this purpose often produced recommendations favouring the tax department and focussed only on overruling decisions that went against the tax department, but failed to address issues holistically.
This was likely due to the committees’ lack of practical experience with the challenges faced by corporates and individuals in
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