NEW DELHI: In a major move anticipated during her budget speech on February 1, Finance Minister Nirmala Sitharaman is expected to announce a comprehensive review of the Income Tax Act. Sources indicate that this review aims to simplify the existing tax framework, which currently comprises a staggering 71 TDS sections.
Announcing the last budget this year, she said, “I am announcing the comprehensive review of Income Tax Act, 1961. The purpose is to make the act concise, lucid, and easy to read and understand. This will reduce disputes and litigation, thereby providing tax certainty to the taxpayers. It will also bring down the demand embroiled in litigation. It is proposed to be completed in six months.”
As part of this overhaul, the minister may propose measures to consolidate and simplify TDS regulations, making compliance easier for taxpayers. “TDS/TCS have almost become a parallel Income Tax Regime over years. As of now, there are 71 Sections under TDS as follows from Section 190 to Section 206CCA covering Provision for TDS/TCS Direct Payment, deductions and Procedures.
Instead of these 71 Sections, there can be a single comprehensive Schedule of Rates of TDS (just Like the Customs Tariff Act) with Schedule Notes. These will wipe out 71 sections with 1 Schedule and would be the first major step to simplification and reduction of litigation,” said Vivek Jalan, partner with Tax Connect Advisory.
“Further age-old processes like issuance of TDS Certificates, which have become redundant with the introduction of Form 26AS, should be scrapped to cut compliance burden of deductors,” Jalan added.
As per sources, discussions are underway regarding the merger of penalty provisions, currently spread across 45 sections. This consolidation is seen as essential by experts to reduce confusion and litigation. Experts suggest these can be merged into two or three sections. In addition to these reforms, the government is considering phasing out old income tax regime.
As part of this review, there are discussions about eliminating Chapter VI A deductions, a longstanding aspect of the tax structure, say sources. These deductions are seldom used after the new tax regime kicked in. Other deductions also need to be scrapped or the eligibility criteria need to be relaxed.