In February this year, the Union Finance Minister introduced the Income-Tax Bill, 2025, in Parliament. If enacted, the legislation will replace the Income-Tax Act, 1961, and, according to the government, will simplify the law for both taxpayers and administrators alike.
The current law, of 1961, the government claims, has become unwieldy and unclear not only for the common person but also for professionals, littered as it is with provisos, exceptions, and non-obstante clauses. The newly designed draft purports to clear the fog and foster greater certainty in taxation, with a view to reducing litigation and creating a fairer, more predictable tax environment.
There can be little doubt that these are worthy causes to pursue. But a reading of the Bill shows us that behind the cosmetic and structural alterations that it seeks to make, little else will change. Many of the complexities and ambiguities that plague the current legislation remain unbroken. And, in some areas, the Bill seeks to make into law a set of powers that are troublingly authoritarian, even more so than what the present, already severe, legislation permits.
Jurisdictions across the world have tried to move towards legislative drafting that promotes the use of plain language. The underlying idea is that laws should be more accessible to the broader public, thereby enhancing transparency and making governments more accountable.
Some critics argue that plain language and precision do not always go hand in hand — that the technicality of legalese ensures greater accuracy and specificity; that a quest for clarity can at times come at the cost of exactness. However, global examples have shown us that simplifying legal language is not necessarily detrimental to accuracy. In fact, clearer laws can help eliminate confusion, improve compliance and ultimately reduce litigation.
Complex and knotty text
But the Bill, despite its vaunted objective, scarcely embraces this approach. It continues to rely on dense and convoluted text, doing little to make the law more accessible to the common taxpayer. For instance, we are led to believe that the replacement of the phrase “notwithstanding anything contained to the contrary…” with the words “irrespective of anything to the contrary” will help simplify the law.
The use of the term “notwithstanding” denotes what lawyers describe as a “non-obstante” clause; it has a rich legal history attached to it. In theory, the word “irrespective” ought to now be accorded the same meaning, but it is hard to comprehend how this change helps unravel the law to the everyday taxpayer.
It is worth bearing in mind that fiscal laws are not the easiest to draft in simple terms. But the Bill’s failure here emanates at least partly out of the absence of any change in government policy. The state’s approach to how it taxes income remains what it has been for years. In the absence of any fundamental adjustment in the law’s basic thrust, the draft winds up akin to something of a manual or a digest — a marginally more concise guide to the existing 1961 law.
The Bill does seek to remove a few of the outdated redundancies in the prevailing statute. In places, definitions have been made crisper, and some of the timelines and compliance requirements have been consolidated into tables and schedules. But all of this could well have been achieved through streamlined amendments rather than a complete overhauling of the existing statute.
What is more, for all the efforts that the Bill seeks to make, its provisions continue to perplex. The framers appear to have overlooked the fact that a mere shifting of timelines from clauses and paragraphs to tables and schedules will not eliminate the law’s inherently litigious nature, especially when those tables include cross-references to other sections of the Act.
Cosmetic alterations
To make matters worse, despite its intended repeal, the new law will also incorporate by reference some of the existing legislation’s clauses. For example, the term “income” is defined under Section 2(49) to include a series of things such as profits and gains, dividend and allowances, as well as everything covered under Section 2(24) of the present law. If a definition needs reference to the old legislation, one might well wonder what we are really gaining from this exercise.
Bringing about textual alterations without altering the statute’s basic philosophy presents another problem. Since 1961, India’s courts have rigorously interpreted the legislation’s provisions, clarifying the law for taxpayers. Now, changes made through the Bill may reopen settled debates, subjecting the same provisions to renewed interpretation. The result might well be more litigation and less certainty.
Consider one of the more heavily contested areas under the Act: the power of the income-tax authorities to reopen completed assessments. Until April 2021, the Revenue could make reassessments only if it had “reason to believe” that income had escaped the tax net — a phrase that sparked endless court battles. The law was then changed to allow reassessments wherever authorities had “information” suggesting income had escaped assessment. The term “information” was defined to include, among other things, data obtained through a “risk management strategy” framed by the Central Board of Direct Taxes. However, in a law brimming with definitions, “risk management strategy” remained undefined.
Although some of these gaps have been addressed by the courts, delegating critical power to the executive has opened the door to potential abuse. The Bill does little to filter this provision. Instead, it adopts the existing text and rearranges its structure. It is difficult to see how this approach will alleviate litigation.
The point of search and seizure
Perhaps the most worrying aspect of the Bill is its approach to search and seizure. The current law grants to the taxman enormous police power to search persons and their properties, and seize goods found during a search. Although this authority has been upheld by the courts previously, its validity following the Supreme Court of India’s judgment in Justice K.S. Puttaswamy vs Union of India (2017), where the fundamental right to privacy was affirmed, is suspect.
Rather than addressing this concern, the Bill extends the power of search into new domains. It does so by allowing officials to inspect “any information stored in an electronic media or computer system”. A computer system is defined widely to include all manners of data storage and what is described as a “virtual digital space” — among other things, email servers, social media accounts and digital application platforms. Should a taxpayer deny access to these spaces, the authorities can now override access codes to enter the system.
In sanctioning this the Bill marks a significant departure from the law as it stands, which does not explicitly permit digital intrusions. Until now, officers have still been demanding access to laptops and hard disks, although it could be contended that these directions are in breach of the law. But if the Bill is enacted, officials, in furtherance of a search, can legitimately trawl through emails and messages received and sent on Gmail, X, or Instagram, and every other such platform.
In times where digital communication is so deeply integrated into both professional and personal life, to permit government easy access to intimate and sensitive data is fraught with danger. The Bill offers no judicial oversight over these powers. To the contrary, it enables authorities to keep to themselves the reasons undergirding a search.
When the Select Committee of the Lok Sabha scrutinises the Bill, it may well find that this is an exercise best shelved. Rather than a sweeping effort at repeal and reenactment, we may be better served if Parliament can tidy up some of the misgivings in the present law and rid it of its more draconian commands.
Suhrith Parthasarathy is an advocate practising in the Madras High Court
Published – March 05, 2025 12:16 am IST