Streamlining the Income Tax Act: A Remarkable Six-Month Journey
In a landmark achievement, the Income Tax Department undertook the ambitious task of rationalizing and simplifying the extensive Income Tax Act of 1961 within just six months. The culmination of this effort is the significantly more user-friendly Income Tax Act of 2025, following the implementation of the Select Committee’s extensive suggestions in a mere month.
The Finance Minister announced on July 23, 2024, that the complete simplification process aimed to make the law more lucid, clear, and precise was set to be realized within six months. R.N. Parbat, a member of the Central Board of Direct Taxes (CBDT) overseeing legislation, remarked, “The task was given to the Department of Revenue and the CBDT. It was to be done in-house.”
By August 14, a drafting committee led by Chief Commissioner of Income Tax V.K. Gupta was established, marking the beginning of intense efforts to overhaul the Act. Subcommittees were created to scrutinize every facet of the law, focusing on eliminating redundant sections while reviewing others. As the scope of work became clearer — the 1961 Act originally contained 819 sections — the number of subcommittees increased, eventually totaling 26.
Additionally, a review committee was formed to evaluate the contributions of the various drafting subcommittees. Mr. Parbat explained that once the review committee finalized its work, it was submitted to the Tax Policy and Legislation (TPL) division of the CBDT. The draft underwent further scrutiny from senior CBDT officers. Throughout this process, both the Revenue Secretary and the Finance Minister maintained regular communication with the drafting committee and TPL, while consultations were held with the Ministry of Law. The work was broad-based, involving more than 150 officers from the Department,” Mr. Parbat stated, noting that the team comprised officers from diverse batches including senior members from 1988 and junior members from 2018. Probationers in training were also engaged in the process.
On February 13, 2025, the Bill draft was presented before Parliament, exactly six months after the drafting committee’s formation. The restructured Act saw the number of chapters reduce from 47 to 23 and the number of sections drop from 819 to 536. The new Bill provided 57 explanatory tables, a significant increase from the previous 18, and introduced 46 formulae, compared to just six before. Efforts were made to simplify the language; unnecessary jargon and archaic terms like “notwithstanding” were mostly eliminated, and relevant examples were included for clarity.
In comparison, the Parliamentary Select Committee responsible for reviewing these changes required five months to submit its report, which included around 1,312 suggestions. In response, the TPL division collaborated with core committee members to produce written replies submitted to the Select Committee. Following comprehensive communication with the Revenue Secretary and the chairman of the CBDT, the Standing Committee delivered its report to Parliament on July 16, 2025. The revised Bill was ultimately passed in Parliament on August 12, 2025, marking just a year since the drafting committee’s inception.
Reflecting on the process, Mr. Parbat noted that while the U.K. and Australia took over four years to complete similar initiatives, the CBDT executed theirs efficiently within the allotted timeframe. “The process was started and completed within the time given to us, so there is no question any longer of whether we would have preferred more time to do it,” he stated, emphasizing that the enormous task encompassed 75,000 man-hours of effort. Whether completed in two years or six months, the volume of work required remained unchanged.
