On February 13, 2025, Finance Minister Nirmala Sitharaman introduced a new Income Tax Bill in the Indian Parliament, aiming to modernize and simplify the existing tax framework. This bill seeks to replace the six-decade-old Income Tax Act of 1961, addressing complexities and promoting ease of compliance for taxpayers.
Key Features of the New Income Tax Bill:
Simplification and Reduction in Length:
- The new bill condenses the previous legislation from over 800 pages to approximately 622 pages, eliminating outdated sections and presenting tax rates in a more accessible format.
Enhanced Digital Access for Tax Authorities:
- The bill grants tax authorities extensive powers to access taxpayers' electronic records, including emails, trading accounts, social media, and digital application servers during investigations. This provision aims to streamline the assessment process but has raised concerns regarding privacy and data security.
Introduction of 'Tax Year' Concept:
- The bill proposes the concept of a 'tax year,' aligning the assessment year with the financial year, thereby simplifying the tax filing process and reducing confusion among taxpayers.
Reduction in Tax Slabs and Rates:
- The new tax regime introduces revised income tax slabs, aiming to reduce the tax burden on the salaried middle class. The standard deduction has been increased from ₹50,000 to ₹75,000, making income up to ₹7.75 lakh exempt from tax.
Abolition of Angel Tax:
- The bill abolishes the 'angel tax,' which previously applied to investments exceeding the fair market value in unlisted companies, often affecting startups and early-stage businesses.
Revised Capital Gains Tax Structure:
- The tax rates on short-term and long-term capital gains have been adjusted, with the exemption limit for long-term capital gains raised from ₹1 lakh to ₹1.25 lakh.
Reduction in Tax Deducted at Source (TDS) Rates:
- The bill proposes a reduction in TDS rates for various payments, including insurance commissions, rent, and e-commerce transactions, aiming to simplify compliance and reduce the tax burden on individuals and businesses.
Implications for Taxpayers:
The introduction of the new Income Tax Bill signifies a substantial shift towards a more transparent and taxpayer-friendly system. The simplification of tax laws and reduction in tax rates are expected to ease compliance and encourage voluntary tax payments. However, the expanded powers granted to tax authorities to access digital records have raised concerns about privacy and data security. Legal experts advocate for clear safeguards to balance effective tax enforcement with the protection of individual rights.
As the bill undergoes parliamentary scrutiny, it is anticipated to undergo further refinements. The government's commitment to modernizing the tax system reflects a broader objective of fostering economic growth, enhancing compliance, and ensuring a fair tax environment for all stakeholders.
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