Outlays, outcomes, and outposts, the triumvirate of “O”s which determines major microfinance decisions is closely interlinked with an economy’s power to leverage self-sufficiency and ascendancy. The Narendra Modi government has consistently been driven by its urge to predicate reforms — including, in particular, repealing a few hundred statutes, besides consolidation of labour codes to propel its overarching objective of modernity and simplification. Juxtaposed against these measures is the cloistered jugular of fiscal legislation: the income tax Act, viewed as a cynosure for annual rejigs and updates. While income tax legislation in any jurisdiction is majorly viewed as adversarial, it demands an overhaul when posited with cumbersome provisions, unwieldy drafting, and serpentine disputes. The landscape for the economy has been tenuously embowed with a range of tax disputes, causing ripples of anxiety among large taxpayers and potential foreign investors and large industrial behemoths looking to invest in the economic fold. Equally for India, tax reforms are imperative to improve revenue productivity and conform to the vision of accelerating economic growth and development, more so in the post-reforms period. Buoyed by the success stories from the previous repeal of statutes, the ministry of finance introduced the new Income Tax Bill to accommodate new economic trends and be truly “glocal” in its appeal. This is a synchronised symphony for the Prime Minister’s heralding vision for a Viksit Bharat status. A closer look at the fine print of fiscal prudence and economic objectivity of our extant bill merits discussion, and consequent policy prescriptions.
The proposal has been made public through the official website and included in the agenda for the 2025 Budget session in the Lok Sabha. At first brush, it successfully addressed the need for simplification by removing confusing references and reducing verbose phraseology. Another notable improvement is the usage of tables for tax deduction and collection provisions. Further, the dedication of separate sub-chapters towards trust taxation, transparent entities/business trusts, and a new tax regime is a welcome step and contributes to the overarching theme of “concise, lucid, and easy to read legislation”.
The Income Tax Bill will be effectuated from April 1, 2026, and while this provides leisure for stakeholders to indulge in detailed analysis, a sombre reaction can be expected from business enterprises. This exercise was announced in the July 2024 Budget with an inherent six months’ deadline, for which stakeholder consultation was initiated. An overwhelming 20,000+ responses were received. Owing to the gargantuan hype around reforming the Act, substantive changes were expected, including, but not limited to, provisions related to mediation, compromise of disputes, simplification of transfer pricing assessment and reassessment provisions, efforts to streamline the oft-criticised transfer pricing regime from an multinational enterprise standpoint, and efficacies in the overall dispute resolution mechanism. However, a trenchant reading of the proposed bill may seem subdued and benign to taxpayers with high expectations, as it pertains to a mere remodelling of law which does little to roll out substantive bold reforms.
A cursory glance at the long-standing issues reveals chinks in the armour. A case in point: the reassessment provisions in the Covid-19 years, which resulted in several thousands of writs in high courts nationwide and were eventually decided by the apex court, an outcome resulting in bruised taxpayer sentiment due to unwieldy drafting of law and deviation from the nine points. That being said, the root cause of despondency can also be attributed to the mechanism for reviewing the extant law. Although the FAQ suggests that best practices have been adopted by conferring with prominent jurisdictions like Australia and the UK, little attention has been devoted to the meaningful stakeholder consultation process. In advanced jurisdictions, the recommendations are published, followed by a periodic review of the implementation. The country’s capital markets regulator, the Securities and Exchange Board of India, is the prime example of a rigorous consultation process.
India’s endeavour is principally driven by the aim of building a conducive tax ecosystem for investors, and certainty ought to be the prime driver. However, tax uncertainty has remained a roadblock for our ambition. The reasons are multi-fold, from drafting to administration of law to government pursuing disputes up until the highest judicial forum. The present code has been amended over 65 times with more than 4,000 amendments through the Finance Acts, with each new amendment leading to more interpretative challenges and a plethora of disputes. Amidst this, the time is ripe to foster an out-of-court tax settlement mechanism to fast-track the resolution process and alleviate an unwarranted burden from the judiciary including affirmative statement to curtail tax disputes. The new code falls short of addressing this crying demand. In addition, a periodic review of the Act by an all-encompassing group of government-appointed stakeholders, including independent experts, as part of a high-powered committee is a must to strengthen the new law. This shall synchronise India’s efforts to mirror the income tax legislation with evolving business economic realities and interpretational issues, with its lofty ambitions for global ascendancy at the turn of its century of independence, in form and merit.
Given the importance of the new code/legislation, it will be referred to the standing committee of Parliament, for which the scope has already been delineated. The primary role of the standing committee would be to engage with all stakeholders, particularly business enterprises, such that appropriate amendments are made to ensure that the law is ready for its implementation.