The Central Board of Direct Taxes (CBDT) is looking at ways to make taxation simpler for India’s rapidly expanding retail investor base, with the tax administration seeking to reduce the compliance burden associated with investing in financial products such as mutual funds.
Speaking at the Moneycontrol Mutual Fund Summit in New Delhi on September 16, CBDT member Sanjay Bahadur said the tax framework should focus less on individual transactions and more on ensuring government revenues while making compliance easier for investors.
“From taxation point there should be an approach that should not look at transactions,” Bahadur said. He added that the government’s objective was to balance revenue requirements with ease for investors, with that ease coming “without compliance”.
Bahadur said the CBDT intends to simplify the taxation process further, emphasising that tax policy should be easy to understand and comply with.
The comments come as mutual funds are increasingly becoming a preferred investment avenue for younger and professionally qualified Indians, who are moving beyond traditional avenues such as fixed deposits and physical assets to deploy their surplus savings.
Bahadur said the tax department is increasingly turning to technology, including an AI chatbot introduced this year to answer taxpayers’ questions.
The AI model is being continuously trained to provide answers that are both accurate and easy to understand, he said, adding that this is a daily exercise. Interestingly, a large share of the questions come from relatively small taxpayers, many of whom seek clarity on the tax implications of a potential investment before making it. The chatbot is therefore being used not just to resolve tax queries, but to help taxpayers understand the tax event that could arise from a particular investment decision, he said.
“MF is the go-to sector especially for the young who want to invest surplus money,” Bahadur said, pointing to the wide range of mutual fund products available to investors.
Using the example of smartwatches, Bahadur said a product can offer significantly more functionality than a traditional watch while retaining a simple interface.
He suggested the same principle could apply to the tax system.
Bahadur also highlighted the Income Tax Act, 2025, saying it had significantly reduced the number of words, sections and chapters in an effort to make tax law easier to understand.
“The tax policy should be simple to understand and comply,” he said.
Bahadur also linked the growing participation of retail investors in mutual funds to the broader mobilisation of domestic savings.
He said young professionals were increasingly becoming more alert about how their surplus money was being deployed, with mutual funds offering multiple avenues across asset classes.
The aggregation of these investments, he said, is helping pool the financial capacity of young Indians and could support India’s growth ambitions under Viksit Bharat 2047.
