India’s government is taking significant steps to streamline its income tax filing processes, aiming to mitigate the challenges faced by taxpayers and reduce the burgeoning tax disputes, which have escalated to over $120 billion in the last decade. A comprehensive revision of the Income Tax Act of 1961 is currently underway, with expectations that the proposals will be open for public consultation around mid-January.
Sources close to the developments, who requested anonymity due to the sensitive nature of the information, indicated that the updated legislation will be unveiled as part of the government’s budget, anticipated in early February. The proposed modifications focus on clarifying the language used in tax documentation and organizing information through the implementation of formulas and tables, with no changes anticipated to existing tax rates or policies.
The Finance Ministry has not yet responded to inquiries regarding these changes. India has long endeavored to modernize its tax regulations, striving to alleviate the bureaucratic load on taxpayers while enhancing compliance. Over the decade leading to the fiscal year ending March 2023, tax disputes have surged to an alarming 10.5 trillion rupees (approximately $123 billion).
In July, Finance Minister Nirmala Sitharaman announced a thorough review of the country’s tax laws, which is slated for completion within six months, to create a more taxpayer-friendly environment. Here are some key proposals being discussed:
- Replacement of complicated income computation procedures with straightforward formulas.
- Adoption of a unified definition of the tax year to supplant the current dual practice of assessment year and financial year.
- Use tables to present information for similar taxpayers, enhancing clarity and comprehension.
- Reduction of the supplementary forms that taxpayers must submit with their tax returns, with a focus on making these forms readily available online.
These initiatives underscore the government’s commitment to creating a more navigable tax landscape, fostering a culture of compliance, and ultimately lessening the burden on its citizens.
