The new Income Tax Bill makes things simple, but there are concerns

THE PRIMARY INTENTION of the new Income Tax Bill, introduced by Finance Minister Nirmala Sitharaman in February, is to simplify and modernise India's direct tax framework. To that effect, the new bill is substantially concise, just about half the length of the act it is replacing.

So, what has changed in the bill?

The bill has made many things simple to understand. The current income tax law follows the concept of financial year and assessment year. Many tax payers are confused about it when it comes to selecting the relevant year and filing returns. The new bill introduces the concept of tax year, which is essentially defined as the 12-month period of the financial year starting on April 1.

In the budget, the finance minister had raised the income tax limits in a bid to leave more money in the hands of the people and thus boost consumption. People earning annual salary up to Rs12 lakh won't have to pay any income tax due to the rebates under the new tax regime. Tax slabs, too, were rejigged; the highest tax slab of 30 per cent will now be applicable to those earning annual income above Rs24 lakh (it was Rs15 lakh earlier). The new bill sticks to this and there are no changes in filing deadlines, either.

The bill lays the foundation for a modern, stable, and business-friendly tax system that aligns with India’s evolving economic landscape, said Dinesh Kanabar, CEO of Dhruva Advisors. “The Income Tax Act of 1961 had evolved into an intricate web of amendments, making compliance a challenge. By eliminating redundant provisions and restructuring the act, the bill paves the way for an efficient and litigation-free tax regime,” he said.

The bill continued with the tax structure as applicable earlier for domestic companies. The base tax rate for foreign companies has also been retained at 35 per cent, exclusive of additional surcharges and cess.

The bill contains a comprehensive set of transition provisions to ensure continuity in tax exemptions, deductions and ongoing tax proceedings. Importantly, all provisions related to tax deductions at source (TDS) have been brought together. Ease of understanding by consolidating provisions relating to common topics at one place is a big advantage of the bill, said Mihir Gandhi, partner, tax and regulatory services, BDO India.

There are, however, issues that are still unaddressed. “Providing a roadmap to reduce pending litigations, such as putting timelines for some of the appellate proceedings, is missing. Consolidation of the multiple withholding tax rates; including provisions to deal with some of the newer concepts of the businesses such as guidance on handling ESOPs, taxation of AI-based changes in the business models; and roadmap on India’s position on international tax developments are some of the key expectations of the tax payer's community that were not addressed," said Gandhi.

Experts at Trilegal also pointed out another concern. “The definition of income in the new bill has more than 20 line items,” they said. “The last line item classifies 'any other income referred to in section 2(24) of the Income Tax Act, 1961' as income as well. This would imply that to this extent, the new law would need to be read along with the existing act, which should ideally not be the case given the intent with which the new law has been proposed.”