The Union Budget 2025 has stirred up a lot of discussion, particularly regarding the introduction of a new Income Tax Bill, which is set to be unveiled by Finance Minister Nirmala Sitharaman next week.
This move is part of the government’s ongoing efforts to make tax laws more user-friendly and easier to understand. The new bill, which will be based on the Direct Tax Code, aims to simplify tax compliance for the average taxpayer while removing unnecessary complexities from the Income Tax Act.
The announcement of the new Income Tax Bill comes after a series of previous commitments to revise the existing tax laws, which many experts and citizens alike have often found to be convoluted.
The government has made it clear that the intention behind this overhaul is to ensure that the Income Tax Act becomes more comprehensible and eliminates duplications in tax laws.
This review will not only make the laws easier to understand for individuals but is also expected to reduce the administrative burden on taxpayers and officials.
The idea behind this new approach is to present a more streamlined system, making it easier for individuals to comply with tax rules.
Tax experts have pointed out that the existing tax laws are often hard to follow, with intricate clauses and provisions that can be confusing, especially for people who do not have a background in law or accounting.
By improving the readability of the laws, the government hopes to encourage better compliance and fewer misunderstandings.
One of the key areas of focus in the new bill will be the simplification of the residential status classification of taxpayers.
Under the current framework, an individual's residential status is categorised into three main types: Resident individual, Resident but not ordinarily resident individual, and Non-resident individual.
This classification has often been cited as a source of confusion, as it requires individuals to understand and meet specific conditions to determine their residential status.
Tax experts believe that a simpler, more transparent approach to defining and understanding residential status could help taxpayers avoid errors in their filings.
This will make the entire process much smoother for everyone, especially for those who are filing taxes for the first time or are unfamiliar with the technicalities of the tax laws.
By removing unnecessary complexity, the government is looking to encourage more people to file their taxes correctly and on time.
Additionally, the new Income Tax Bill is expected to address other aspects of the tax system that could benefit from simplification. The proposed changes are likely to focus on modernising and updating provisions that have become outdated in the current system.
For example, certain tax benefits and exemptions might be restructured or removed, depending on the evolving needs of the economy and taxpayers.
One of the anticipated changes is a review of the income tax slabs and exemptions, which could further benefit middle-income earners. Simplifying these provisions and providing clear guidelines would reduce confusion and ensure that taxpayers are not overburdened by taxes.
Moreover, such changes could improve the overall ease of doing business in the country, encouraging economic growth by fostering a more efficient tax system.
The push for simplification is not only about improving the taxpayer experience but also about reducing the workload of the tax department.
A simpler, more straightforward Income Tax Act will make it easier for tax authorities to process returns, verify compliance, and ensure that there are fewer disputes between taxpayers and the government.
This could lead to a more effective and efficient tax administration system, which will benefit the entire nation in the long run.
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