• Notification Date: 08-10-2024
• Notification No: N/A

The review of the IT Act will focus on simplification, with significant changes expected in the second phase in FY26

The first phase of the review of the IT Act was aimed at simplifying the law. The second phase in FY26 will address significant changes, particularly the introduction of new policies and structures to facilitate tax dispute resolution and tax compliance.  

The Government of India plans to simplify the Income Tax Act in the first phase of the review and will continue with the comprehensive review in the next fiscal year, with the second phase to be implemented in FY26. While the current review, expected to be completed in early 2025, focuses primarily on simplifying the legal text and removing outdated provisions, the second phase will aim for more substantive reforms, a senior government official said. 

"The second part of the review of the Income Tax Act is aimed at promoting taxpayer compliance through significant changes in dispute resolution and other mechanisms." It is not just about removing old provisions but making the entire structure more user-friendly. In the first phase, which is currently underway, the government is focusing on simplifying the language of the Income Tax Act without changing the existing provisions.    

This part of the amendments is aimed at making the law shorter and easier to understand. "The Income Tax Act is being amended to simplify the language. The objective is to slim down and simplify the law to convey the same meaning," the official said, adding that the amendments are likely to be introduced in the Union Budget 2026. The government is working on a gradual simplification of the law, with the first phase focusing on amending the provisions. "The first part of the analysis is expected to be completed in early 2025 and will mainly involve amendments to reduce the burden of the current law without changing key provisions. From a compliance perspective, it will still be less complicated, but it will be clearer," the official said.   

"The second part of the review will remove and amend key provisions to facilitate compliance. The dispute resolution mechanism will also be amended to make the law more taxpayer-friendly," the official said. The ongoing first phase, expected to be completed in early 2025, focuses on making the legal language of direct taxes easier to understand, shorter, and simpler without changing the provisions of the existing law.   

The second phase envisages significant changes to dispute resolution and other mechanisms. The key is not to remove outdated provisions but to make the entire structure more user-friendly.   

The government is committed to simplifying the law in a phased manner over a period of time, focusing on streamlining wording changes in the first phase of the review. "The first part of the review, which will culminate in early 2025, will primarily focus on rewriting the wording of the current law to make it less burdensome without changing any significant provisions." "It's still not less complex from a compliance perspective, but it's becoming clearer," the official said. The government is working to simplify the Income Tax Act through substantive and textual changes. The Indian government is likely to simplify the Income Tax Act in the first phase of the review and will continue its comprehensive review in the next financial year, with the second phase likely to be carried out in FY26.