Major income tax reforms in pipeline, Budget 2025 to ease filing process: Sources

February 2025 is poised to usher in a new era of tax simplicity in India, as the upcoming Union Budget 2025-26 aims to reform the Income Tax Act, making tax filing easier for citizens, according to sources.
Sources in the Finance Ministry told India Today TV that a series of major reforms to the income tax system are in the works. These reforms are focused on enhancing compliance, streamlining tax structures and improving the overall ease of doing business.
Amid evolving global and domestic challenges, India is seeking to boost economic growth. Over the past decade, the government has made significant strides in easing the tax burden on businesses and individuals. The proposed changes are intended to provide relief to taxpayers while broadening the tax base.
The intricate Indian tax system presents significant challenges for both businesses and individuals. A prime example is the time-consuming process of filing income tax returns.
India Today TV spoke to Chartered Accountants and tax experts, who unanimously agreed that the excessive complexity of forms and queries has significantly increased the burden of tax compliance. With increased liability, the CAs are forced to exercise extreme caution.
The challenges are not limited to income tax returns. Filing Goods and Service Tax (GST) returns is equally cumbersome, often taking 15 days to a month. Moreover, audits can extend over several months. The GST filing can take up to a month, while audits can last for months.
One of the greatest fears shared by individuals and businesses alike is the prospect of non-compliance with income tax returns, as a notice from the tax department can be a daunting experience. However, the ongoing simplification efforts, frequently discussed by both Finance Minister Nirmala Sitharaman and Prime Minister Narendra Modi, aim to transform tax filing from a dreaded task into a routine process.
Historically, the Income Tax Department was often perceived as an entity solely focused on making life difficult for citizens. Recognising this sentiment, the government introduced the faceless assessment scheme on April 1, 2021. This initiative was designed to minimise human interaction in tax disputes and assessments. Under this system, the Income Tax Department handles returns, refunds, assessments, scrutiny, and appeals, with cases being assigned randomly to assessing officers, regardless of geographical location.
A primary objective of the proposed income tax reforms is to alleviate the complexities that currently hinder both taxpayers and the government. To achieve this, 22 specialised sub-committees have been established to scrutinise various aspects of the Income Tax Act. The Finance Ministry is actively engaged in meetings and discussions to identify necessary changes to benefit citizens.
India’s tax system has long been criticised for its intricate filing procedures, multiple tax brackets and frequent regulatory changes. These factors have often led to confusion and compliance challenges for individuals and businesses alike.
To address these issues, the Finance Ministry is focusing on streamlining the income tax filing process. This includes simplifying tax forms, bolstering digital infrastructure, and minimising paperwork. The introduction of e-filing systems in recent years has been a significant step forward, but further advancements are anticipated to encourage greater participation in the formal tax system.
The Finance Ministry is looking at an overhaul of sorts regarding the Income Tax Act:
A key aspect of the income tax reform is the potential simplification of tax brackets and reduction of tax rates. India’s current income tax system, with its numerous exemptions, deductions and rebates, can often be complex and inefficient. To address this, the government is exploring proposals to consolidate the number of income tax brackets, making the system more straightforward.
Additionally, there is a possibility of lowering corporate tax rates to enhance India’s competitiveness as a global business hub. Reduced corporate taxes could incentivise businesses to reinvest in the economy, stimulating job creation and industrial growth. Furthermore, proposals to extend tax relief to middle-income groups and small businesses are being considered, as these sectors are crucial for post-pandemic economic recovery.
PM Modi has consistently urged more citizens to come forward and pay taxes. Over the past decade, the government has introduced various initiatives to encourage tax compliance and broaden the tax net.
India has historically faced the challenge of a narrow tax base, with a significant portion of the population remaining outside the formal tax system. To address this, the Finance Ministry is exploring strategies to enhance tax collection and promote voluntary compliance. This may involve leveraging advanced data analytics to track financial transactions and identify potential tax evaders.
The government is also prioritising the expansion of digital payments and the formalisation of the informal economy. As more economic activities shift to the digital realm, it becomes easier for the authorities to monitor and tax these transactions.
This aligns with the government’s broader goal of financial inclusion, aiming to bring more individuals into the formal economy and thereby expanding the tax base.
While these reforms are anticipated to benefit taxpayers, particularly those in the middle-income bracket, the Finance Ministry should also ensure sustained tax revenue.
Striking a balance between taxpayer relief and adequate revenue generation is essential to maintain government spending on vital sectors such as infrastructure, healthcare and social welfare programmes.