Centre to revamp income tax filing rules: key simplifications expected in upcoming budget

The Indian government is preparing to overhaul its decades-old income tax filing rules in the upcoming Union budget. The aim will be to simplify the filing process, reduce disputes, and make tax compliance easier for individuals and businesses, it is believed.

A revamp of the Income-tax Act of 1961 is in its final stages and is expected to be released for public consultation by mid-January. According to sources familiar with the matter, the proposed changes will focus on simplifying the language used, incorporating user-friendly formulas, and presenting data in tables for better clarity. These changes will not affect tax rates or policies.

The updated framework is expected to be officially unveiled in the upcoming Union budget, providing a much-needed modernization of India’s tax laws.

Why the changes are crucial

Complex regulations and tedious processes have resulted in tax disputes in India skyrocketing to ₹10.5 trillion ($123 billion) over the last decade. The reforms aim to ease the burden on taxpayers and improve compliance.

Finance Minister Nirmala Sitharaman had announced in July 2024 that a comprehensive review of tax legislation would be undertaken to make it more taxpayer-friendly. This initiative is supposed to be a step toward fulfilling that promise.

Key proposed reforms

Here are some highlights of the proposed changes:

1. Simplified income computation: Complex calculations will be replaced with easy-to-use formulas, reducing confusion and errors.
2. Unified tax year definition: The distinction between the assessment year and financial year will be eliminated for simplicity.
3. Visual taxpayer profiles: Identical taxpayer categories will be presented in tabular formats for better understanding.
4. Fewer forms, fully online: The number of additional forms required will be reduced, and all forms will be made available online for convenience.

Frequently asked questions (FAQs)

1. What are the key changes expected in the upcoming Budget?

The upcoming reforms are focused on simplifying income tax computations, introducing a unified tax year definition, reducing forms, and making the system more accessible through online submissions.

2. Will the tax rates change as part of these reforms?

No, the proposed changes aim to simplify the process and language of tax filing without altering tax rates or policies.

3. When will these changes come into effect?

The reforms are expected to be proposed in the upcoming Budget and, after parliamentary approval, will likely come into effect from the next fiscal year.

4. How will these changes benefit taxpayers?

The new rules will simplify tax filing, reduce errors, eliminate unnecessary forms, and provide a clear framework, ultimately saving time and effort for taxpayers.

5. What steps should taxpayers take to prepare for these changes?

Taxpayers should stay informed about the upcoming changes and familiarize themselves with any new filing requirements once the revised guidelines are released.