Budget 2025: Will FM Sitharaman unveil a new Income Tax Act? Experts anticipate easier ITR filing, TDS reforms

As Budget 2025 approaches, speculation is rife about whether Finance Minister Nirmala Sitharaman will introduce a revamped Income Tax Act on February 1. The comprehensive review of the Act, announced during the Budget 2024 speech, aimed to simplify and modernize tax laws, promising clarity and reduced litigation for taxpayers. The review process, initiated on July 23, 2024, was set to conclude by January 23, 2025.

Goals of the Review

The Finance Minister emphasized the need for a tax law that is concise, lucid, and easy to understand, ensuring better compliance and fewer disputes. The Income Tax Department has since invited suggestions via its portal, allowing stakeholders to recommend changes under criteria such as simplification of language, litigation reduction, compliance reduction, and removal of redundant provisions.

Expert Insights

Key expectations from the revamped Act include lower tax rates driven by higher compliance and simplified tax provisions. According to Dipesh Jain, Partner at Economic Laws Practice, individual taxpayers in lower tax brackets are eagerly awaiting relief. Expanding the tax revenue base could alleviate the burden on salaried individuals.

Rajul Kothari, Partner at Capital League, highlighted the challenges caused by frequent and complex changes to personal tax and capital gains provisions, which have left taxpayers navigating a maze of rules. "A clear, transparent tax regime will reduce litigation and foster economic growth," he said.

Need for Simplification

Experts agree that simplification is key to reducing tax litigation. Chirag Chauhan, a Mumbai-based chartered accountant, pointed out that taxpayers currently face unnecessary complexity, such as choosing between the old and new tax regimes. He called for a complete overhaul to eliminate ambiguity and outdated allowances.

Bhavin Shah, Partner at MSKB & Associates LLP, stressed the need to address administrative challenges. From streamlining the management of tax litigation to expediting appeals and applications for advance rulings, Shah believes definitive timelines should be laid out in Budget 2025.

Revolutionary Expectations

According to CA Pratibha Goyal of PD Gupta & Company, major reforms are anticipated in Budget 2025 to pave the way for the new Income Tax Act. Key expectations include:

Rationalizing TDS provisions by reducing the number of rates.

Making the New Tax Regime more attractive by raising the basic exemption limit to ₹5 lakh.

Increasing rebates for income up to ₹10 lakh.

Simplifying income tax return (ITR) filing rules.

The Road Ahead

With heightened optimism among experts and taxpayers, Budget 2025 is expected to set the stage for a modern, streamlined tax framework. As Sitharaman takes the podium on February 1, all eyes will be on the potential unveiling of a New Income Tax Act, ushering in a new era of tax compliance and economic growth.