The Finance Ministry’s Revenue Department is expediting a comprehensive review of the Income Tax Act of 1961 to simplify and condense it by removing up to 120 sections, sub-sections, and clauses. 

The focus is on rationalising exemptions and deductions, aligning computing methods with international standards, and expediting the tax appeals process. 

In 2017, the NDA government formed an expert team to evaluate the Income Tax Act and develop a code outlining proposed changes to the direct tax laws. Following this, the committee headed by Chief Commissioner V K Gupta produced a report suggesting several significant amendments to the Act.

Chief Commissioner V K Gupta’s committee extensively addresses issues and obstacles in simplifying and consolidating the long-standing Income Tax Act. As per Agrawal, the committee is examining the “problem statement” outlined in the latest budget and striving to identify the “optimal path ahead” for implementing a new direct tax legislation.

The Income Tax Act of 1961, which originated in 1922, currently consists of 298 sections, 23 chapters, and other provisions.

Introducing a new direct tax code is unlikely, so the focus is on simplifying the current Act. The expert team formed by the NDA government has suggested fundamental revisions to the Act, and Finance Minister Nirmala Sitharaman has announced changes in the July 2024 Budget to make it more straightforward and concise. 

The committee is also exploring best worldwide practices and aiming to enact a new direct tax law to simplify tax, improve taxpayers’ services, provide tax certainty, and reduce litigation.

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