Govt plans to overhaul income tax filing in Union Budget 2025 with simplified rules: Report

The Union government is reportedly planning to simplify its income tax filing rules to ease compliance for taxpayers and reduce tax disputes that have surged to over $120 billion in the past decade.

A revamp of the Income-tax Act of 1961 is in the works and is expected to be opened for public consultation by mid-January, Bloomberg reported on Wednesday citing people familiar with the matter. The revised legislation will be introduced in the 2025 budget, scheduled for early February, according to the report.

India has long sought to modernise its tax laws to reduce bureaucratic hurdles and boost compliance. Tax disputes have more than doubled in the past decade, reaching 10.5 trillion rupees by March 2023.

Presenting the Union budget for FY2024-25, Finance Minister Nirmala Sitharaman in July last year announced a comprehensive review of the tax framework to make it concise, lucid, easy to read and understand.

"It will also bring down the demand embroiled in litigation," she had said.

In October, the Central Board of Direct Taxes (CBDT) formed an internal committee to oversee a comprehensive review of the Income-tax Act, 1961.

The committee invited public inputs and suggestions on simplification of language, litigation reduction, compliance reduction, and redundant/obsolete provisions.

A webpage was launched on the e-filing portal for the stakeholders, experts, and the public to specify the relevant provision of the Act or Income-tax Rules, 1962 to which the suggestion relates.

According to the Bloomberg report, some of the proposed changes include replacing complex income computation methods with clear formulas, standardising the tax year to unify assessment and financial years, using tabular formats for taxpayer categories to improve clarity, and reducing additional forms required for filing and making them available online.

The Union Budget 2025-26 is set to be presented on February 1.