NEW DELHI: The much-anticipated new income tax bill, set to be unveiled on February 6, 2025, is poised to bring sweeping reforms to the current Income Tax Act, aiming to make it more relevant and user-friendly for taxpayers of the 21st century. Finance Minister Nirmala Sitharaman, speaking shortly after presenting her eighth consecutive Union Budget, emphasized the necessity of amendments to the Income Tax Act to align it with contemporary economic conditions and taxpayer needs.
According to Sitharaman, the new bill will significantly reduce the current act's content, which is nearly 6 lakh words long, aiming to slash up to 3 lakh words. She highlights the intention to not only simplify the provisions but to also widen the tax net and reduce the burden on honest taxpayers. "We are focused on ensuring the system is simple enough for citizens to handle on their own," she remarked during her interview with The Times of India.
The finance minister asserted the importance of tax relief measures introduced through the budget as part of the effort to honor honest taxpayers. "We must not burden the narrow tax base any longer. It’s time to attract newer participants to the tax regime," she added. The proposed tax reforms are part of Sitharaman's broader vision to promote transparency and trust between the taxpayers and the government.
During the discussion on the new tax initiatives, the finance minister reiterated the government's commitment to implementing the 8th Pay Commission beginning January 1, 2026, which aims to bolster the salaries of government employees and uplift the macroeconomic fundamentals of the country.
"We believe the measures will spur consumption and savings among citizens, encouraging discretionary spending," Sitharaman stated. The expectation of increased consumer spending highlights the government’s focus on enhancing economic growth, targeting 8% GDP growth by 2047 to become a developed nation.
Sitharaman elaborates on the bill's philosophy, which emphasizes simplification and taxpayer-friendliness, declaring, "The language will be tightened to eliminate interpretative problems, and we hope to cut the complexity of the existing law significantly." She also indicated there would be reduced penalties to promote voluntary compliance among taxpayers.
Many economists and stakeholders have shown interest in how these reforms would impact the overall economic environment. The finance minister expressed optimism about the fiscal health of the country, citing strong macroeconomic fundamentals which are expected to weather global uncertainties including trade fluctuations.
Experts believe the approach taken with this bill could replicate some of the successes seen with the Goods and Services Tax (GST) legislation, which also sought to simplify India’s indirect tax structure. Sitharaman remarked, "This new income tax law will be more progressive, focusing on trust rather than enforcement, ensuring taxpayers are more compliant."
The need for reform arises from the observable contraction of the tax base, largely attributed to exemptions and the complexity of compliance. Sitharaman emphasized the necessity of widening the tax net, stating, "It’s integral for us to bring more individuals under the tax umbrella to create a fair system for all residents.”
The government’s strategy includes leveraging technology for faceless assessments and easing compliance burdens, involving significant changes to taxpayer interactions with the administration. "This is not just about changes to law but about building confidence and respect for taxpayers who contribute to nation-building efforts," stated Sitharaman.
Looking forward, the government is poised to focus on enhancing economic growth through comprehensive measures across sectors, including agriculture, exports, and MSME assistance. The vision includes increasing investments and tapping new markets to combat any potential global factors affecting trade.
Reflecting on the challenges and resistance faced historically, Sitharaman mentioned, "We want to engage with all stakeholders, including state governments, to address concerns about welfare spending and narrow down inefficiencies stemming from the fiscal model currently posited." This statement reflects the need for cooperation among various entities to tackle persistent issues effectively.
While the government has pledged to rationalize customs duties and maintain operations effectively, the finance minister acknowledged limitations. "We will have to be vigilant about upcoming global tariffs and their effects on our economy but remain hopeful about our adaptability knowing we have continuously adapted our trade policies to meet such challenges.", she noted.
With the release of the new income tax bill on the horizon, all eyes remain on potentially transformative impacts not only on taxpayer experiences but also on the Indian economy as it faces both domestic and international pressures. The Finance Minister is optimistic, stating, "We are confident about these reforms setting the foundation for sustained economic growth and increased government revenue, positioning us toward our long-term aspirations."