Opinion: Streamline India’s tax regime
A statutory review committee to assess the law every three years will ensure that the new Act remains relevant
By Dr Md Sikandar Azam, Prof Sushanta Kumar Mahapatra
The Income Tax Bill, 2025, which aims to replace the Income Tax Act, 1961, was reintroduced in the Lok Sabha on August 11, 2025, and passed without any discussion, followed by its passage in the Rajya Sabha. The Bill proposes April 1, 2026, as its implementation date.
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Since the Income Tax Act, 1961, came into operation, it has been amended nearly 65 times, with more than 4,000 amendments, resulting in 819 sections and many exemptions and deductions. The Income Tax Act has been subjected to severe criticism due to the lethargy that has permeated this taxation regime.
The core of transformation lies in enhanced stakeholder transparency, for which citizens provided 20,976 inputs, and these should be put on public dashboard
Moreover, in an era of accelerated technological advancements, green compulsions, and a thriving startup ecosystem, this decades-old law was increasingly out of touch with the economic realities of today’s era. The new Bill sets a direction for a streamlined, transparent, and improved tax regime to address the challenges and modernise the Indian tax system.
Income Tax Act, 1961
The Income Tax Act, 1961, has long been in need of a slew of reforms, including a rejig of many clauses. The Act that was the terra firma of the country now stands on stumbling blocks. The Bill seeks to reinforce this ailing architecture with some reforms. As Dwight Waldo famously proclaimed, “The means of doing business shall be less un-business-like.” The new Bill promises to streamline taxation procedures by eliminating manual interface through rapid digitisation and the adoption of Generative AI.
The current I-T Act lacked alignment with the digital economy, defining virtual assets, the gig economy, codifying General Anti-Avoidance Rules, and enhancing faceless assessment protocols. The proposed Act should focus on a single clearance window and motivate mushrooming startups to contribute to India’s burgeoning economy. It should even address double taxation concerns and lay stern checks and balances in the case of profligacy or debauchery.
The Next Step
The Income Tax Bill, 2025, has not entirely overhauled the existing Act, but has streamlined the terminology, simplified provisions, and clarified language. The core of transformation lies in enhanced stakeholder transparency, for which citizens provided 20,976 inputs. However, how these suggestions were addressed requires a public dashboard to institutionalise accountability and public trust.
A strong tax system must address significant challenges, such as evasion, digital economy taxation, incentives for green investments, and compliance simplicity. While the Bill has passed Parliament, its success will depend on effective execution. The following measures can help streamline the process:
• Single-window powered by AI: Integrating AI-powered tools for faceless tax administration through real-time tax calculations, error detection, and personalised alerts can minimise noncompliance. Using blockchain to filter high-value transactions, especially in virtual digital assets (VDAs), improves efficiency, reduces litigation, impedes evasion, and streamlines audits. A single-window system for filings, TDS tracking, and dispute resolution, complemented by graphic visuals displaying allowances such as HRA and gratuity, enables small businesses and taxpayers to steer the tax ecosystem smoothly.
• Encouraging startup and salaried class: Extending startup tax holidays from three to five years under Section 80-IAC will provide a fillip to startups and foster innovation. This will boost the venture capital ecosystem and attract angel investors. Some deductions in the new tax regime — similar to Sections 80C and 80D, besides making education loans and health expenditures affordable by reviewing the GST — will ease the burden on the salaried class.
• Strengthening Anti-Avoidance Measures: General Anti-Avoidance Rule (GAAR) provisions should be tightened to curb evasion via offshore structures and shell companies by imposing higher penalties, mandating the disclosure of foreign income and assets, and expanding tax audits for entities engaged in cross-border transactions. Moreover, the proposed Bill should align India’s tax year with the global calendar, commencing from January 1 to December 31. Encouraging innovation, R&D, leveraging a green tax for SDGs, incentives for renewable energy investments, and carbon credits will help align with India’s net-zero goals.
A statutory review committee to assess the law every three years will ensure that the Act remains relevant without accumulating repetitive and outdated provisions.
Restoring Confidence
The 1961 Income Tax Act is a puzzle that needs considerable overhaul. The proposed Bill can ensure that tax burdens are evenly distributed to restore taxpayer and investor confidence. By removing loopholes, reducing litigation, enhancing administrative effectiveness, and bringing provisions in line with the realities of the digital and green economy, India can step towards a tax system that is robust, equitable, and growth-friendly.
However, the forward path demands political will and collaborative stakeholder engagement. Moreover, a transparent, technology-driven, and pro-growth tax system enhances revenue collection while ensuring fairness, predictability, and economic prosperity.
(Dr Md Sikandar Azam is with Department of Finance, ICFAI Business School, and Accounting, and Prof Sushanta Kumar Mahapatra is with Department of Economics, ICFAI School of Social Sciences, ICFAI Foundation for Higher Education (IFHE), Deemed University, Hyderabad)
