20 Key Reforms in Income Tax done by Modi Govt in India since 2014
Tax simplification has been a key focus of reforms to India’s income tax system, with the goal of making compliance easier and more efficient. Here’s an overview of the measures taken, as described in the sources:
- Simplified Tax Structure: The introduction of a new, simplified tax regime under Section 115BAC allows taxpayers to choose between the old regime with exemptions and deductions or a new regime with reduced tax rates but fewer deductions. This offers taxpayers the flexibility to choose a simpler tax structure. The new regime has lower tax rates, for example, 5% for income between INR 2.5 lakh to INR 5 lakh. For the 2025-2026 financial year, individuals earning up to INR 1.2 million annually will have no income tax liability under the new regime, excluding special income. The 2025 budget also proposes a revised tax structure with rates starting at 5% for income between INR 400,000 and INR 800,000, increasing to 30% for income above INR 2.4 million.
- Digitalization: The government has introduced measures like e-filing of tax returns, pre-filled ITR forms, and real-time processing to improve efficiency and transparency. The “Transparent Taxation” platform launched in August 2020 includes pre-filled ITR forms and an integrated tax compliance system. The average processing time for refunds has been reduced significantly due to these measures. Data Analytics and AI: The government utilizes data analytics and artificial intelligence (AI) to detect tax evasion. By leveraging these technologies, authorities can identify potential discrepancies and non-compliance, which acts as a deterrent against tax avoidance. This use of technology is not for punitive reasons alone, it also facilitates an environment that promotes voluntary compliance. Read New Income Tax Act 2025: update : In parliament Today
- Faceless Assessments and Appeals: The “Faceless Assessment Scheme” launched in August 2020 eliminates the physical interface between taxpayers and tax officials, reducing corruption and increasing transparency. By FY 2021-22, all assessments, appeals, and penalty procedures became faceless.
- Increased Threshold for Tax Audits: The turnover threshold for mandatory tax audits has been increased to promote digital transactions and ease compliance for small businesses. It was raised from INR 1 crore to INR 5 crores in Budget 2020 and further to INR 10 crores in Budget 2021 for businesses conducting over 95% of transactions digitally.
- Abolition of Dividend Distribution Tax (DDT): The abolition of DDT in Budget 2020 simplified the tax process and made Indian equities more attractive to foreign investors by preventing double taxation.
- New Income Tax Bill: The upcoming Income Tax Bill 2025 is designed to be clear and concise, reducing the length of the existing law by nearly half. This aims to enhance tax certainty and minimize litigation.
- Block Assessments for Transfer Pricing: The introduction of “Block Assessments” for transfer pricing (TP) proposes a shift from the current practice where TP audits are conducted separately for each financial year (FY). TP assessments or audits would cover a block of three consecutive FYs, reducing both the compliance burden on taxpayers and the administrative workload on Transfer Pricing Officers (TPOs) when transactions are identical or similar.
- Safe Harbor Rules: The 2025-26 Budget proposes an expansion of the Safe Harbor Rules to reduce litigation and provide greater certainty.
- Streamlined Merger Approvals: The procedure for the expedited approval of company mergers will be streamlined, with the process for fast-track mergers expanded and simplified.
- Introduction of Vivad se Vishwas Scheme : The scheme was launched in March 2020, and by March 2021, over 1.2 lakh cases were resolved, resulting in tax collections amounting to INR 54,000 crores.The scheme allows taxpayers to settle their tax disputes by paying only the principal tax amount. Interest and penalties associated with the disputed tax are waived. This provides a significant incentive for taxpayers to resolve their cases quickly
- Simplified Processes: The government has introduced numerous measures to simplify tax procedures, making it easier for taxpayers to comply. These include pre-filled ITR forms, digital platforms for tax filing, and streamlined assessment processes. Easier compliance reduces the time and effort required to file taxes and contributes to more people doing it voluntarily.
- Increased Taxpayer Base : As a result of these measures, there has been a noticeable increase in taxpayer confidence and compliance. The number of income tax returns filed increased significantly from 3.79 crore in FY 2013-14 to over 8.00 crore in FY 2023-24. This growth indicates that a significant portion of the population is now more willing to comply with tax laws due to the enhanced transparency and efficiency.
- Incentives for Startups: Various incentives for startups, such as tax holidays under Section 80-IAC and exemptions from capital gains tax on investments, encourage participation in the formal economy. The government also broadened the definition of eligible startups, making more businesses eligible for these benefits.
- Strengthening International Tax Compliance and Easing Transfer Pricing:• Adoption of BEPS Measures: India has adopted Base Erosion and Profit Shifting (BEPS) measures to tackle tax avoidance strategies used by multinational corporations. BEPS refers to tax planning strategies used by MNEs that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations. By adopting BEPS measures, India aims to ensure that profits are taxed where economic activities occur and value is created.• Multilateral Instrument (MLI): India has signed the Multilateral Instrument (MLI), which is an international agreement to implement tax treaty-related measures to tackle BEPS. The MLI modifies existing bilateral tax treaties to prevent tax avoidance and improve dispute resolution mechanisms.• Renegotiation of DTAAs: The government has renegotiated several Double Taxation Avoidance Agreements (DTAAs) with various countries, including Mauritius and Singapore. These renegotiations aim to curb treaty shopping and round-tripping of funds, which are practices used to avoid taxes by routing investments through countries with favorable tax treaties.• New Presumptive Taxation Regime: Effective April 1, 2026 (FY 2025-26), a new presumptive taxation regime is proposed for non-residents providing services or technology for setting up an electronics manufacturing facility in India. Under this regime, 25% of the total amount received by a non-resident will be deemed as profits, resulting in an effective tax rate of less than 10% on gross receipts. This measure aims to simplify tax compliance for non-resident entities involved in setting up electronics manufacturing in India.• Harmonization of SEP with Business Connection Rules: The provision for Significant Economic Presence (SEP) has been harmonized with business connection rules. Non-residents purchasing goods in India for export will no longer be subject to SEP regulations. This harmonization provides clarity and reduces compliance burden for businesses engaged in export activities.• Block Assessments for Transfer Pricing: The introduction of “Block Assessments” for transfer pricing (TP) proposes a shift from the current practice where TP audits are conducted separately for each financial year (FY). TP assessments or audits would cover a block of three consecutive FYs, reducing both the compliance burden on taxpayers and the administrative workload on Transfer Pricing Officers (TPOs) when transactions are identical or similar. This amendment is scheduled to take effect from April 1, 2026.
- Reduction in Corporate Tax Rates: In September 2019, the corporate tax rate for domestic companies was reduced from 30% to 22%. Additionally, a 15% tax rate was introduced for new manufacturing companies incorporated after October 1, 2019, provided they commenced production by March 31, 2023. This was a substantial cut aimed at making India a competitive investment hub.• Objective: The primary aim of lowering corporate tax rates was to stimulate investment and foster a business-friendly environment. By reducing the tax burden on companies, the government intended to encourage both domestic and foreign investment, which would contribute to economic growth.
• Impact: The reduction in corporate tax rates is expected to have a positive impact on business profitability and investment. It is intended to encourage businesses to invest more in India, create more jobs, and stimulate economic activity
• Global Competitiveness: This move resulted in India’s corporate tax rate becoming one of the lowest among major economies. This enhancement in competitiveness was designed to attract businesses looking for favorable tax environments - Updated Tax Returns :
•Time Limit Extension: The time limit for filing an updated tax return has been extended from 3 to 5 years, effective April 1, 2025 (4 years from end of Relevant Assessment year means total 5 years) . This allows taxpayers more time to rectify errors or omissions in their original tax filings.• Additional Tax Payable: If an updated tax return is filed after three years but within four years, an additional 60 percent tax will be payable. This increases to 70 percent if filed after 4 years but within 5 years. This additional tax serves as a deterrent against delaying corrections to tax filings.• Disallowance of Updated Returns: The filing of updated tax returns will be disallowed if a reassessment notice is issued after 4 years unless the reassessment is subsequently dropped. This is to prevent taxpayers from using updated returns to circumvent the reassessment process. - Changes in TDS and TCS by Budget 2025• Interest Earned by Senior Citizens: The TDS threshold on interest earned by senior citizens has been increased from INR 50,000 to INR 100,000. This means that senior citizens will not have TDS deducted on their interest income until it exceeds INR 100,000 per financial year.• Interest Earned by Other Residents: For other resident individuals, the TDS limit on interest income has been raised to INR 50,000 from the current INR 40,000. This change provides a slight increase in the threshold for TDS deductions.• Mutual Fund Investments: The TDS threshold on dividends from mutual fund investments has been increased to INR 10,000 from INR 5,000. This doubles the threshold at which TDS will be deducted on mutual fund dividends, providing relief to investors.
• Rent: The TDS threshold on rent has been increased to INR 600,000(No TDs if Monthly rent is upto Rs 50000 per month or part of the month) from INR 240,000 . This substantial increase means that individuals receiving rent income will not face TDS deductions unless their rental income exceeds INR 600,000 annually.
•Increased Threshold for TCS : The threshold for TCS on remittances under the Liberalized Remittance Scheme (LRS) has been extended to INR 1 million per financial year, up from the existing INR 700,000 per financial year. This change impacts individuals who send money abroad for travel, education, and other expenses.•TCS Removal for Education: It is also proposed that TCS be removed on remittances for education purposes when the remittance is made using a loan from a specified financial institution. - Compliance for Crypto Currency Trading :• Annual Reporting Requirement: Starting April 1, 2026, a new annual reporting requirement for crypto assets will be introduced. This will include specific rules for reporting entities, information scope, reporting methods, and due diligence procedures. This indicates a move towards greater oversight and regulation of the crypto market, requiring detailed disclosures from investors.• Expanded Definition of Virtual Digital Assets (VDA): From the financial year 2025-26, the definition of virtual digital assets (VDA) will be broadened to include any crypto asset that utilizes cryptographic and distributed ledger technology for transaction validation and security. This expanded definition is intended to capture a wider range of crypto assets under the regulatory framework, ensuring that most forms of cryptocurrency fall under these new rules
- Changes in Capital Gains Taxation : as per Budget 2025 •Long-Term Capital Gains (LTCG) Tax on Business Trusts: The LTCG tax on business trusts, specifically Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs), will be reduced to 12.5 percent (plus applicable surcharge and cess). This is a reduction from the highest marginal rate, which could be significantly higher.• LTCG Tax on Securities for Foreign Institutional Investors (FIIs): The LTCG tax on the transfer of certain securities by Foreign Institutional Investors (FIIs) will be adjusted from 10 percent to 12.5 percent (plus applicable surcharge and cess). This adjustment represents a slight increase in the tax rate for these specific transactions.•Securities held by Alternative Investment Funds (AIFs): Securities held by Category-I and Category-II Alternative Investment Funds (AIFs) will be classified as ‘capital assets,’ and the income generated from them will be treated as capital gains. This clarification ensures that income from these securities is taxed as capital gains, aligning with the broader framework for capital assets.•Carry Forward of Losses from Amalgamation: Losses incurred by a predecessor entity due to amalgamation or business reorganization can be carried forward and set off for up to 8 years after the assessment year in which the loss was first calculated. This provides a longer period for businesses to utilize losses to offset future capital gains, thereby reducing their overall tax liability.
- Maximum Time limit for Income Tax Notice Reduced :
Section 149 of the Income Tax Act deals with the time limit for issuing notices under sections 148 (reassessment notice) and 148A (notice to show cause for reassessment). Here are the key points:
For Section 148 (Reassessment Notice):
- General Time Limit: A reassessment notice cannot be issued if three years and three months have passed from the end of the relevant assessment year.
- Extended Time Limit (Up to 5 years and 3 months): A notice can be issued between three years and three months and five years and three months from the end of the relevant assessment year only if the Assessing Officer has evidence (books of account, documents, etc.) suggesting that the income that escaped assessment is or is likely to be ₹50 lakh or more.
For Section 148A (Notice to Show Cause):
- General Time Limit: A notice to show cause for reassessment cannot be issued if three years have passed from the end of the relevant assessment year.
- Extended Time Limit (Up to 5 years): A notice can be issued between three years and five years from the end of the relevant assessment year only if the information with the Assessing Officer suggests that the income that escaped assessment is or is likely to be ₹50 lakh or more.
In summary: There are two time limits to consider, a shorter one (3 years/3 years and 3 months) and a longer one (5 years/5 years and 3 months). The longer time limit applies only when the escaped income is ₹50 lakh or more, and the Assessing Officer has evidence to support this. The time limits are slightly different for the notice to show cause (148A) and the actual reassessment notice (148).
Here’s a comparison table summarizing the changes to Section 149 of the Income Tax Act, focusing on the time limits for issuing reassessment notices:
Feature Earlier Section 149 (Pre 1-9-2024) Current Section 149 (Post 1-9-2024) Key Changes General Time Limit (Sec 148 Notice) 3 years from end of relevant assessment year 3 years and 3 months from end of relevant assessment year Increased by 3 months Extended Time Limit (Sec 148 Notice) 10 years from end of relevant assessment year (if escaped income >= ₹50 lakh and represented by asset/expenditure/entry) 5 years and 3 months from end of relevant assessment year (if escaped income >= ₹50 lakh) Reduced from 10 years to 5 years and 3 months. Removed the specific requirement of the escaped income being represented by asset/expenditure/entry. Time Limit for Sec 148A Notice No specific mention in earlier section 149. 3 years (general) or 5 years (if escaped income >= ₹50 lakh) from end of relevant assessment year. Explicit time limits introduced for notice under section 148A. Conditions for Extended Time Limit (Sec 148 Notice) Escaped income of ₹50 lakh or more and represented in the form of (i) an asset; (ii) expenditure; or (iii) an entry in books of account. Escaped income of ₹50 lakh or more. Removed the specific forms (asset, expenditure, entry) that the escaped income must take. It’s now sufficient that the income has escaped assessment and is ₹50 Lakh or more. Specific Provisions for Search Cases Several provisos addressed search cases and related timelines, including exclusion of time for specific situations. The current version simplifies the overall structure with fewer provisos addressing specific search-related situations. The exclusion of time for 148A proceedings is maintained. Streamlined provisions related to search cases, now implicitly covered by the main clauses and the exclusion for 148A proceedings. Explanation of “Asset” Included a specific explanation of what constitutes an “asset” (immovable property, shares, loans, deposits, etc.) for the purpose of the section. No specific definition of “asset” is currently present in Section 149. Removed the specific definition of “asset.” Notice for Multiple Assessment Years (1A) Specific provision (1A) existed for issuing notices for multiple assessment years where the escaped income related to multiple years. No direct equivalent in the new section. Removed the specific provision related to escaped income across multiple years. In essence: The amendment significantly reduces the maximum time limit for reassessment, especially for high-value cases. It also simplifies the conditions for applying the extended time limit and introduces specific time limits for the notice under Section 148A. The removal of the detailed provisions for search cases and the definition of “asset” suggests a move towards a more general and less prescriptive approach.
These measures aim to simplify the tax system, reduce the compliance burden, and improve the overall experience for taxpayers. The reforms also seek to foster a business-friendly environment and promote economic growth.