The Finance Minister has announced that a new simplified income tax law will be tabled soon. The intent is to make the legislation “concise, clear, and easy to understand” with a view to reduce disputes and provide more certainty to the taxpayers.

A public consultation process initiated by the government has asked for inputs under four categories — language simplification, litigation reduction, compliance reduction and obsolete provisions.

This is indeed a massive exercise with the government having constituted 22 sub-committees to recommend the required changes.

We begin by explaining why the income tax regime is complex and then outline some of the changes we expect to see. This reform process must go deeper than mere linguistic modifications to overcome real problems.

Tax laws world over share a common disrepute for being long and complex. The Indian Income-tax Act, 1961 (‘ITA’), as it stands today, contains 298 sections (spread across 23 chapters) and 14 schedules encompassing a few hundred pages.

Tax laws must continuously play catch up with at least some taxpayers who devise ingenious methods to avoid and evade tax liability. Successive Indian governments have, over the years, doubled down on their efforts to proactively plug every possible revenue loss by closing loopholes and identifying newer tax bases, e.g. by introducing several retrospective amendments to section 9 to capture cross-border indirect share transactions within the tax-net post the infamous Vodafone litigation.

This results in an annual exercise of several substantive amendments trying to capture various possibilities which have added to the length.

For the taxpayer, the legal position can only be ascertained by navigating the labyrinth of the ITA, delegated legislation (income tax rules, notifications and circulars issued by the tax department), the annual finance acts and judicial precedents. This makes it daunting and inaccessible to most.

The reform project at hand is herculean but the need of the hour offering also a significant opportunity.

One of the recommendations sought is in respect of obsolete provisions. This is a welcome move given the existence of archaic and defunct provisions. For example, under section 115WA of Chapter XIIH (titled income-tax on fringe benefits), companies were required to pay a fringe benefits tax on the benefits and perquisites offered to employees. The tax has been rolled back since 2009, but the provisions still exist in the statute. Moreover, some provisions need to be revisited to keep pace with present-day economic realities. For example, if the income of a minor child is clubbed in the parent’s hands under section 64(1A), the parent is only allowed an exemption of ₹1,500 under section 10(32).

The second recommendation is in respect of language simplification. The ITA is fraught with provisos or exceptions. Often one sees exceptions worded as provided, provided further and provided also which makes it tough to read and apply. The ITA also contains explanations which elaborate on the meaning terms. To fathom the sheer numbers, consider section 9 which is an oft litigated provision as any income covered here is taxable even for non-residents.

Section 9(1) runs from section 9(1)(i) to section 9(1)(vii). Section 9(1)(i) has seven explanations and 14 provisos.

Some sections also use double or triple negatives that make it difficult to comprehend, such as section 2(14) that defines a capital asset. A capital asset is defined as property of any kind but excludes personal effects (movable property held for personal use). Personal effects do not include certain enumerated items such as jewellery, archaeological collections, sculptures or work of art.

These instances are illustrative of the convoluted language that we hope is tackled by the promised reform process.

Reports from the media suggest that this round may not include major substantive changes in the law. Simplification of language is a step in a positive direction as it can reduce unwarranted discretion of the tax authorities.

However, the momentum from potential reform would be in vain if the systemic issues leading to low taxpayer morale are ignored. The government’s public consultation also looks at suggestions for reducing litigation and compliance which holds the promise of further reform, even if not immediate.

The rewrite process allows policymakers to think about the design or structure of the law itself. A recent working paper from the International Monetary Fund (Strengthening Tax Governance Through Legal Design) advocates for strengthening tax governance by thinking from the lens of legal design principles.

Applying these principles in the Indian context, lawmakers may consider grouping and consolidating according to topic. This can be thought at the level of the chapters and the individual provisions. Provisions dealing with all aspects of a particular kind of income may be consolidated in one place.

For example, to understand winnings from online games one needs to peruse at least two sections. While section 115BBJ (Chapter XII) identifies what is taxable, the rate for tax deduction at source is in section 194BA (Chapter XVII).

Further, the draftsmen may consider a user-friendly format such as tables for provisions dealing with deductions (e.g. Chapter VIA), tax rates (spread across the ITA and annual finance acts, withholding rates (Chapter XVII) and penalties (Chapter XXI).

The various broadly worded provisions must be carefully revisited to avoid unnecessary ambiguity and attendant administrative and compliance costs.

In particular, the retrospective amendments introduced post the Vodafone litigation under section 9 must be reconsidered. Additional retrospective amendments must be avoided unless strictly amounting to a clarification of the law.

Taxpayer morality is influenced by extrinsic and intrinsic factors. Taxpayers are welcoming the revision of tax slabs and rates in the Finance Bill, 2025. Taxpayers have also been seeking accountability. The law must look to enhance trust and transparency through concrete codification and increased enforcement and protection of taxpayer rights.

We do have a taxpayers’ charter of rights issued by the tax department, but it is time to also incorporate these rights in the statute.

Kotha is Assistant Professor (Department of Revenue Chair) at National Law School of India University; and Kaushik is a tax lawyer