The Select Committee of Lok Sabha devoted approximately 25,000 hours to reviewing the Income Tax Bill 2025, which is meant to replace the Income Tax Act that has become large and unwieldy over decades. It suggested a few taxpayer-friendly changes, including on inter-corporate dividend deductions, loss carry-forward rules. Clarity on anonymous donations and return filing for refunds has also been proposed. The Committee’s objective was to achieve clarity, not brevity, its chairperson, Baijayant Panda told Prasanta Sahu. Excerpts:
The Committee has done an exercise compared to the drafters of the Bill and examined it clause by clause. The I-T department spent nearly 60,000 human hours drafting the Bill. How much time did you spend on further fine-tuning it?
We have not done that type of calculation, but we can easily derive it. If you round up everything, including witness sittings and internal sittings, it will be about 25,000 human hours. The most important part of the Committee was the members’ very collaborative and cooperative nature.
You would have got representation not only about simplification but also on tax policy changes…
The government has made a decision that the tax regime simplification and rationalisation will be done in several steps. First big bang step (through the I-T Bill 2025) was to simplify the Act as it exists to make it easy to understand and comply, without discussing whether rates should change, or whether the applicability of some tax should change.
Our mandate was to simplify the Act as it exists, not to change the policies. So, we got tens of thousands of pages of suggestions. A large number of them were in line with the mandate, and they were discussed and debated. There were eight full days of hearings with the finance ministry. We asked them to justify each line, each clause, and we asked them to look at the suggestions and to have their viewpoint on it. Accordingly, the Committee has advised 330-odd changes.
Did you receive suggestions beyond the mandate, on tax rates, policy changes etc?
Many stakeholders, including industries, associations, lawyers, chartered accountants and others, came in with suggestions, which sought a change of policy. This was the forum for simplifying the Act. There will be policy changes, perhaps in the Finance Bill, during the Budget.
The 500,000-odd words in the I-T Act were reduced by half in the I-T Bill. Now, you have suggested some changes for more clarity. Is the objective of making it easy to understand achieved?
Our primary objective was not brevity, but clarity. The tax department’s brevity has led to a 50% reduction in words and saved 2,50,000 words. So, if we add another few hundred words, it is not a material difference (in terms of length), but it will improve clarity.
In most of the places, the new wording is very good, accurate and clear. In a few places, we have recommended that they go back to the original wording.
With regard to long-term capital gains (LTCG), there seems to be some confusion over the applicability of the 18.5% alternate minimum tax provision on LLPs…
Let me make it very clear, intent is not changing the law, but making it clearer. I think in one or two cases, some stakeholders have interpreted it as if there is some change of law. For example, the LLPs with regard to applicability of LTCG, I want to reassure that there is no change in the law, no new applicability of tax has been put in. I’m quite sure this (any ambiguity) will get sorted out in the course of the Bill becoming an Act.
India’s (income) taxpayer base is very small. What needs to be done to bring more people into the tax net?
The Goods and Services Tax (GST) has achieved the same thing by simplifying, reducing the number of taxes, reducing the number of layers of taxes, and it has made a dramatic difference. Now, this proposed simplified Income Tax Act is going to have a huge impact in widening the tax net. One of the issues that we came across in a number of witness hearings is that there are a lot of would-be first time taxpayers who are willing to pay tax, but very afraid that if they start paying tax, they would get caught up in some complicated mess and require a lot of expert consultation. This simplified new Act is going to have a very beneficial effect.
