The Indian government is preparing to simplify income tax filing rules as part of a significant overhaul aimed at making the process more user-friendly and reducing longstanding disputes, which have accumulated to over $120 billion in the last decade. This reform will modernize the Income-tax Act of 1961, aiming to ease compliance for taxpayers while streamlining the system. Reports suggest that the proposed changes are in the final drafting stage and are set to be released for public consultation by mid-January 2025, with inclusion in the Union Budget 2025 expected in early February.
The planned reforms focus on simplifying language and using formulas and tables to rationalize information rather than altering tax rates or policies. Finance Minister Nirmala Sitharaman, in July 2024, announced a comprehensive review of tax legislation, highlighting the need to address bureaucratic hurdles and encourage compliance. This initiative seeks to modernize India’s tax framework and provide clarity for taxpayers, addressing Rs 10.5 trillion ($123 billion) in tax disputes as of March 2023.
Key changes under consideration include replacing complex income computation methods with straightforward formulas, standardizing the tax year by removing the distinction between the financial year and the assessment year, and introducing tabular formats for similar taxpayer categories to improve clarity. Additionally, the reforms aim to reduce supplementary forms required during filing and make them easily accessible online, offering a simpler and more transparent tax-filing process for individuals and businesses alike.
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