The Finance Ministry’s Revenue Department has set up a panel headed by V.K. Gupta, chief commissioner of income-tax (I-T), to simplify and rationalise the Income Tax Act. In the initial discussions, the panel focused on rationalising the exemptions, raising the tax computation methods to global standards, and simplifying the appeals system. During the discussions over the last few days, it has been revealed that more than 90 sections of the Income Tax Act 1961 are no longer relevant. Read the discussions on on direct tax laws.

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During discussions over the past few days and supervised by the Central Board of Direct Taxes (CBDT) Chairman Ravi Agrawal, it emerged that more than 90 Sections of the 1961 law have lost their relevance, according to recent media reports.

The idea is to help the transition of the tax system to an exemption-free regime. For one, it will save the government a lot of resources that go into verifying compliance.

“With our government’s continuous focus on improving the ease of doing business in India, a comprehensive review of the Indian income tax law is a welcome move. As per the Finance Minister’s Budget speech, this review is meant to improve tax certainty for taxpayers and reduce disputes and litigation,” says Alok Agrawal, Partner, Deloitte India.

From an individual tax perspective, the review should also focus on broadening the tax base and increasing the proportion of personal tax collections from non-salaried taxpayers  – this is currently abysmally low, especially given India’s very low share of organised workforce employment.

“The review may also attempt to strike a balance between the new and old tax regimes, and potentially aim for a unified tax regime for individual taxpayers- while the effective tax rate under this regime should be attractive to taxpayers, the government may wish to provide limited exemptions and deductions that do not require verification/scrutiny by employers or the revenue authorities (e.g. details of eligible transactions are fully reported in the AIS),” says Agrawal.

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It is important to remember that the new tax regime was introduced in Budget 2020. The new tax regime had lower tax slab rates, but none of the common exemptions, like those under Sections 80C, 80D, and 24B, were available. Initially, the new tax regime did not find many takers, but since then, the government has provided more incentives under the new tax regime. From FY 2023-24, the new tax regime was made the default tax regime. From this, it is clear that the government wants taxpayers to move to the new tax regime going ahead, and the old tax regime may be phased out.