Context:
The Income Tax Bill, 2025, introduced in Parliament, seeks to repeal the Income Tax Act, 1961, ostensibly to put in simple tax laws for easier compliance and administration. But, while the Bill brings some structural changes, it does not tackle issues that are more complex, in fact, in some areas, it further empowers the government by expanding the contours of its power.
Key Issues with the Bill
Lack of True Simplification
- The Bill uses dense arcane language making comprehension by taxpayers hard.
- Changing a legal term from “notwithstanding” to “irrespective” does not make much of a clearer statement.
- Global standards favor plain language in legal drafting, and this Bill does not follow that practice.
Cosmetic Changes Without Policy Reform
- The basic philosophy of taxation remains unchanged, giving the impression of a revamped version of the 1961 Act.
- Some redundancies have been cleared, but to have amended these through amendments instead of a completely fresh law detracts from the spirit of this new law.
- Cross referencing of older legislation (for example, designing “income” by reference to the 1961 Act) negates any reason for a new statute.
Risk of Increasing Litigation
- The 1961 Act has seen several court decisions interpreting different provisions, thereby providing clarity to taxpayers.
- Such changes to the Bill could reopen a lot of the settled legal debates now causing lengthy litigation and uncertainty.
Reassessment Powers Very Wide
- Income tax authority would previously reopen completed assessments on the grounds that “reason to believe” that some income has escaped the tax net.
- In 2021, this was diluted to reopen on the grounds of “information”, a vague term.
- The Bill doesn’t repair this ambiguity, allowing much room for the discretion of tax officials.
Unprecedented Digital Intrusion
- The search and seizure laws are immensely broadened under this Bill.
- Officials shall inspect electronic devices, cloud storage, e mails and social networking accounts, and other digital platforms.
- If the taxpayer denies access, authorities are allowed to override access codes and enter the system.
- The law of the land does not provide judicial oversight, and tax authorities can keep the reasons for the search private.
What the Bill has Achieved?
- Elimination of some obsolete provisions.
- Collation of compliance timelines into tables/schedules.
What the Bill has Failed to Achieve?
- Truly simple tax laws accessible to all.
- Addressing issues concerning excessive governmental power.
- Create legal certainty using unintended unnecessary changes.
Rather than repealing and reenacting the tax law, a more prudent approach would be to refine the existing Act by eliminating complexities and reducing discretionary powers. If passed in its current form, the Bill risks increasing litigation, reducing transparency, and expanding state surveillance in unprecedented ways.
Source: TH
