The High-Level Committee on Regulatory Reforms, chaired by NITI Aayog member Rajiv Gauba, has proposed further reducing the time available to the income-tax department to reopen completed tax assessments in routine cases, as part of the government’s push to simplify tax administration, reduce litigation and improve ease of doing business, government sources told Moneycontrol.
Currently, the tax department can reopen completed assessments within three years from the end of the relevant assessment year. The law provides a longer reopening window of up to five years in specified cases involving suspected tax evasion of Rs 50 lakh or more, subject to prescribed conditions. According to the sources, the committee has recommended shortening the ordinary three-year reopening period while retaining a longer limitation period for significant tax evasion cases.
“The proposal is to reduce the time available for reopening income tax assessments. At present, the department generally has a three-year window to initiate reassessment proceedings, and the idea is to shorten that period for routine cases,” a government official told Moneycontrol.
The recommendation builds on a series of reforms that have progressively shortened reassessment timelines. The Finance Act, 2021 reduced the general reopening period from six years to three years, while permitting reopening for up to 10 years in certain high-value cases. The Finance (No. 2) Act, 2024 subsequently reduced the extended window to five years.
Tax administration reforms
“This would represent the next step in the government’s effort to rationalise reassessment timelines and provide greater taxpayer certainty,” a source familiar with the matter said.
“The department today has access to far more information through the Annual Information Statement (AIS), Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) reporting, Statement of Financial Transactions (SFT) reporting, faceless assessment systems and data analytics. With these tools, potential cases can be identified much earlier, reducing the need for longer reopening windows,” the person added.
The source said the proposal would bring earlier finality to completed assessments, particularly benefiting businesses undertaking mergers and acquisitions, due diligence and financial provisioning. It would also help shift disputes towards the merits of a case rather than procedural issues.
The person added that any reform should retain a longer reopening window for serious tax evasion and other exceptional cases, in line with international practice where ordinary reassessment periods are relatively short but longer timelines are reserved for fraud and significant tax evasion.
Better certainty, lower litigation
An tax expert said a shorter reopening period would provide greater certainty to taxpayers while reducing litigation and strengthening India’s ease of doing business framework.
“A shorter reopening period would provide greater certainty to taxpayers, lower litigation, and further strengthen India’s ease of doing business framework. It would also encourage the tax administration to identify and conclude reassessment proceedings in a more timely and efficient manner,” he told Moneycontrol.
However, he cautioned that the reform should not weaken the department’s ability to investigate sophisticated tax avoidance.
“A shorter limitation period could, in some instances, reduce the department’s ability to investigate complex tax avoidance arrangements or cases where information surfaces after several years. However, this concern can be addressed by retaining longer limitation periods for exceptional cases involving substantial escaped income, fraud and wilful tax evasion, while providing shorter timelines for routine reassessment matters. Such a calibrated approach would balance taxpayer certainty with the income tax’s legitimate interest in tackling serious tax evasion,” he added.
