Income Tax Act to be overhauled by FinMin’s 5-member committee

A committee of five members headed by an officer of chief commissioner rank has been created by the union finance ministry, with the task of overhauling the Income Tax Act (IT Act), 1961. The committee is likely to present its report by the year end, following which the government will initiate steps to amend the IT Act before the next Union Budget in February 2025.

Tax analysts and professionals have often spoken about how India’s IT Act needs to be simplified. Despite numerous amendments down the decades, the Act remains complicated to understand and cumbersome to execute owing to the scope for more than one interpretation in several key areas beginning with basic provisions such as the definition of income and what is liable to be taxed.

The five-member committee is expected to revamp the Act in a way that it becomes simpler and more user-friendly.

Among areas that the committee is expected pay particular attention to is TDS, or Tax Deducted at Source. Currently, the Act has 33 sections about TDS rate payments. Laying out proper explanations of the different expense categories under TDS as well as suggesting ways to reduce the same would be a significant measure. The committee is expected to focus on ways to lower rates and ensure less paperwork. The dual rates under Section 194J could also be converted into one.

Experts are also confident that the reworked IT Act will usher significant changes in areas such as anti-tax evasion and taxation based on source.

The Centre’s decision to set up the committee is in sync with Finance Minister Nirmala Sitharaman’s assertion while presenting the Union Budget on July 23 this year, when she said that there was the need for a committee that would work “to make the Act concise, lucid, and easy to read and understand”.