Taxing or relaxing?

I remember my days in the early 1990s as a law student when one of my Professors told me that if I could get a grip of the Income Tax Act, 1961 (the “Tax Act”) besides the Companies Act, 1956 (as it was known then) and the Civil Procedure Code, 1908, I would probably be one of the better lawyers in the country.  Although never interested in any fiscal legislation (for eg, – the Customs Act or the Central Excises and Salt Act), I believed (and still do) that a good lawyer must know something of everything and everything of something. So, I read up these convoluted legislations with their attendant case laws trying to make some sense of it.  My little legal brain found some of the provisions of the Tax Act deliberately vague so as to ensure that the exchequer would have a constant flow of “evaded tax” (to avoid is legitimate as we can always plan our tax) and lawyers would have a field day in battling it out with the government.  The last I heard was that the government is the biggest litigator when it comes to fiscal legislations – not surprising at all!  

I heaved a sigh of relief when the Companies Act, 1956 underwent a haul resulting in a more contemporary Act of 2013.  It still is deficient in some aspects, but I shall leave that discussion for another day. I was happy because I knew that someday, the Tax Act would meet the same fate (and as it should).  If a nation must reach pantheons of development, it has to have a happy, honest tax-paying folk where the government in reciprocity deploys for the most part an adequate usage of tax money – albeit a few corrupt hands in the cookie-jar!  Budget 2025 did aim for broadening the tax base with some sops given but any impact of the Budget can be only felt and objectively assessed over the years.  

Likely to be implemented from 1st April 2026, the new Income Tax Bill 2025 (the “Bill”) spans over 600 pages, 536 sections, 23 chapters and 16 schedules and yet is half the word-count than its predecessor.  Hopefully, the lay man will find it easier to read as any legislation, which is less complex and liberal, ensuring more compliance and reduce litigation between the assessees and the revenue authorities. 

Recent Budgetary changes, such as streamlining effectively TDS/TCS provisions, reducing tax slabs, or introducing a three-year block assessment for transfer pricing issues, and providing extra timeline for filing updated returns, all form part of the Bill.  The tax-slab rates and residency status rules have remained unchanged. It makes sense to keep them unaltered as tax slabs and residency status are interdependent and basically fall within the domain of the finance minister to be tweaked when deemed necessary.  

Some notable changes are:

No provisos or explanations:  What a relief not to have those scary words like “provided that…” or “Explanation”.  One only wishes that future revisions to some existing laws follow the same pattern.

• Consolidation of specific terms: Clause 2 of the Bill compiles some terms in one place and one does not have to look for them under specific provisions.

• Ease of compliance: The Bill makes compliance easier for the taxpayers and the authorities streamlining the tax administration process including the use of modern compliance mechanisms.

• Concept of Tax Year: The period of twelve months of the financial year commencing on 1 April shall be the Tax Year.  It replaces the Previous Year and Assessment Year and will now be Tax Year and Subsequent to Tax Year.

• Virtual digital asset: The Bill broadens the definition of Virtual Digital Assets now including crypto-assets, non-fungible tokens or any other digital asset as may specified by the government.

• Tax recovery and appeal: The Bill provides provisions which bring reforms to the tax recovery and appeal processes. 

• Delegation of powers: The Bill now empowers the Central Board of Direct Taxes to initiate procedural matters, tax schemes or compliance frameworks without seeking parliamentary approval thereby reducing bureaucratic delays and increasing efficiency.

Dispute Resolution Committee: This is one big step in the direction of speedy justice.  Hopefully, it will work towards its cherished goal.  

Tabulation of Income eligible for exemption, eligible persons and the applicable conditions under each of the following six Schedules is something that makes it easier to comprehend. This will ease the job of the assessee in the sense that he/she knows what is exempt and where the liability to pay lies.  It is pertinent to note that in any fiscal legislation, the burden of proof lies on the assessee – it is he/she who has to prove that the income is exempt and not the Department (who does not have to prove that the income is taxable after a scrutiny is raised).   

One of the things that we lawyers frown at is excessive verbiage in any statute or for that matter any judgement as well. The Bill seems to have relented significantly on this score providing relief to the common man including senior citizens. The various items eligible for deduction under Section 80C, previously spread throughout the Section, have now been enumerated simply as an arrangement of eligible savings instruments in Schedule XV.  The deduction limit remains clear, while the Schedule provides an easy-to-understand list of eligible deductions.  This makes it more organised.  Likewise, Section 80G, which provides deductions for donations, is now revised to lucidly segregate deductions based on the percentage of eligibility – 100 per cent and 50 per cent, without tweaking any policy change, making it easier for taxpayers to identify the correct deduction claim. Also, Sections 80TTA and 80TTB of the Tax Act provide for deductions on interest earned from savings accounts – 80TTA for the general public and 80TTB for senior citizens. This disparity has now been merged into a single section, with clearly defined sub-sections, ensuring the eligibility criteria and deduction limits for different categories to be clear, thereby leaving little room for error for a taxpayer when he/she prepares his/her returns.  Section 393 of the Bill contains three Tables applicable to three categories of Payees – Residents, Non-residents and any person.  Each Table specifies the nature of income or sum, a monetary yardstick, a payer/person and the applicable TDS rate.  This does away with the earlier scattered nature of the TDS provisions.

Like any legislation, the Tax Act is slated for repeal on the date when the Bill becomes an Act and takes effect, with an appropriate savings clause in the Bill.  Any direction, instruction, notification, order or rule issued under the Tax Act shall continue and the availability of tax credits, carry forward of losses, unabsorbed depreciation, amortisation or deferral of expenses across several years shall be allowed up to the same period as in the Existing Act. All existing Assessment and appellate proceedings shall be continued to be governed by the existing law.

Despite user-friendliness and all the above attempts, one will still find tax evasion in the future as it is rampant across the world.  Some of the biggest tax raids here have been the CBI Raid in Hyderabad Post Offices, Demonetized notes seized by the Jharkhand Police, ED Raid of Money Changers, IT Raid at Sahara Group Offices, Producer of Bahubali under the scanner and Seizure of New Notes in Bengaluru and caught public attention. The burgeoning middle-class will only plan tax in a way that it has more disposable income and that it can buy that new car or take an occasional foreign holiday more often.  The tragic irony is that simple as most of us are, the interpretation of the tax law has always been skewed unfortunately in favour of the exchequer and only when it reaches the higher echelons of the judiciary does one find some respite (by which time money has slipped through butter-fingers on unnecessary litigation – dare I call it vexatious).

Lest I sound cynical, I tend to agree with John Maynard Keynes, “The avoidance of taxes is the only intellectual pursuit that carries any reward.”