Income tax expectations from Budget 2025: Simplify income tax slabs, cut income tax rates, clarify residency laws, allow income tax refunds to overseas bank account
Parizad Sirwalla
Parizad Sirwalla, Partner and Head, Global Mobility Services, Tax, KPMG in India
Income tax expectations from Budget 2025: Simplify income tax slabs, cut income tax rates, clarify residency laws, allow income tax refunds to overseas bank account
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Personal tax plays a crucial role in any country's economic growth and social equity. India is no different. Changes introduced in the Union Budget 2024-25 indicate the Government's commitment to simplify the tax system, enhance compliance and promote financial stability towards the goal of Viksit Bharat.
Also read | Will Budget 2025 merge old and new tax regimes to simplify income tax slabs, structure?
As many of you may be aware that the Central Board of Direct Taxes (CBDT) has set up an internal committee to completely reform the existing Income Tax Act, 1961. This is done with the objective of making the Act concise, clear, and easy to understand, which will reduce disputes, litigation and provide greater tax certainty to taxpayers.
A few areas of reforms in the personal tax space that can be considered in the upcoming Budget 2025 are as follows:
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Simplification of income tax slabs and reducing income tax rates
The new tax regime is expected to continue as the default tax regime. It is expected that the Budget 2025 should bring on reforms designed to make the new tax regime more attractive as compared to the traditional old tax regime. A key change expected here would be the potential simplification of income tax brackets and reduction of income tax rates. Too many income tax slabs and income tax rates make the income tax system complex. Reducing the number of income tax brackets and tax rates under new tax regime will make it simpler and efficient.Also read | Will Budget 2025 replace Income Tax Act with new Direct Tax code? Here’s what experts say
Determination of residential status for individuals
Currently, there is ambiguity in determining residential status in respect of Indian nationals and person of Indian origin coming to India for visits. Hence, there are multiple judicial precedents interpreting the said terms from various perspectives. This is arising due to the term "visit" not being defined under the Income Tax Act. Hence, it would be desirable for the Government to provide a clarification in this regard by specifying objective parameters to determine whether the presence in India is a visit or otherwise.Simplification of TDS compliance for home buyers where the seller is Non-Resident (NR)
Currently, property buyers are required to deduct 1% of the purchase value as Tax deducted at Source (TDS) where the property value is Rs 50 lakhs or more. This process is straightforward where the seller is a resident with a convenient challan-cum-statement in Form 26QB.
However, if the seller is a Non-Resident (NR), the buyer is not only required to deduct TDS at a higher rate but is also required to obtain a Tax Deduction Account Number (TAN), deposit the tax and file e-TDS return, adding complexity for a one-time transaction. To simplify and reduce administrative burden, the Government may consider introducing challan-cum-statements for NR sellers as well.
Extend timeline to file revised return
The timeline to revise income tax return is 31 December following the end of the financial Year. Individuals may earn income outside India for Jan to March of FY (e.g. in the period Jan-Mar 2024 for FY 2023-24) for which the corresponding host country tax return (e.g. US calendar year 2024 tax return is due by 15 April 2025) may only be available post-December (end of calendar year). Hence, the extension of a timeline to file revised return would be helpful in such cases. Extension may be atleast 15 months post end of the FY.Elimination of e-verification of ITR
Currently, e-filing income tax returns in India requires both online uploading and subsequent e-verification (e.g. via OTPs). This requirement poses difficulties, especially for taxpayers residing outside India who may not have an Indian mobile number or access to compatible net banking services. Such taxpayers are then obligated to courier the signed ITR-V to CPC, Bangalore, incurring additional cost and is also an administrative burden. To make it simpler, the Government could consider eliminating the e-verification step (both online and physical submission) thereby allowing the online uploading / filing of tax return and generation of acknowledgement as a single-step completion of the tax filing process.
Perquisite valuation rules for Electric Vehicles (EV)
Currently, Rule 3 of the Income-tax Rules, 1962 does not prescribe a perquisite valuation method for electric vehicles. Considering that many employers are now offering electric vehicles to their senior employees, it may be prudent for the Government to establish a separate valuation method specifically for EVs.Tax payments from / tax refunds into overseas bank accounts
Taxpayers residing outside India and who do not hold active Indian bank account face challenges in remitting taxes and receiving their income tax refunds as these facilities are provided only through authorised banks in India. The Government may consider implementing alternative banking channels or mechanism that enables taxpayers to pay tax directly from their overseas bank accounts or receive tax refunds into their overseas bank accounts. This measure is likely to contribute to Government's goal of simplifying tax procedures.To conclude, as various suggestions have been received by the Government on the entire rehaul of the current Income Tax Act, it will take some time to implement. A roadmap in that direction would be helpful to obtain clarity.
Authored by Parizad Sirwalla, Partner and Head, Global Mobility Services, Tax, KPMG in India
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This story originally appeared on: India Times - Author:Faqs of Insurances
