Parliamentary panel flags ‘punitive’ tax regime, seeks data on new Income Tax Act’s Impact

The Income Tax Act, 2025 repeals and replaces the Income Tax Act, 1961, India's principal direct tax legislation for over six decades. The new Act was framed as a simplification exercise: consolidating provisions, removing redundant language, and reorganising the statute into a more logical structure, without altering the underlying tax policy (rates, slabs, and incentive structures were meant to carry over).

Department-related Standing Committees (DRSCs) are permanent committees of Parliament, one attached to each ministry/department, that scrutinise bills, budgetary Demands for Grants, annual reports, and policy issues in far greater detail than is possible on the floor of the House. The Standing Committee on Finance is the DRSC that oversees the Ministry of Finance, including the Department of Revenue and the Central Board of Direct Taxes.

Key Details

• DRSCs were formally constituted in 1993 (expanded to their current 24-committee structure in 2004) under the Rules of Procedure and Conduct of Business, with members drawn from both the Lok Sabha and Rajya Sabha
• Committee members are elected/nominated for a one-year term; a committee report is a recommendatory document — the government is not constitutionally bound to accept it, though it is required to respond
• The Standing Committee on Finance has 31 members (21 from Lok Sabha, 10 from Rajya Sabha, inclusive of the Chairperson) and additionally oversees the Department of Economic Affairs, Department of Financial Services, and Ministry of Corporate Affairs
• Ministers are not eligible to be members of DRSCs, preserving the committees' role as a check on the executive

India's direct tax collections comprise personal income tax (PIT, paid by individuals/HUFs) and corporate tax (paid by companies). Over the past decade, the share of PIT in total direct tax collections has risen sharply relative to corporate tax, a shift attributed to greater formalisation, digitisation of transactions, and expanded TDS/advance-tax compliance among individuals, even as corporate tax rates were cut.

Key Details

• Personal income tax collections overtook corporate tax collections for the first time in India's history around FY24–FY25, a reversal of the historical pattern
• PIT's share of total direct tax collections rose from about 38% in FY14 to over 53% in FY24, while corporate tax's share fell from about 62% to under 47% over the same period
• The number of individual income tax return filers rose roughly 2.3 times between FY14 and FY23; TDS collections and advance tax payments from individuals also rose sharply over the decade
• The corporate tax rate cut of 2019 (to 22% for existing companies and 15% for new manufacturing companies, under Section 115BAA/115BAB) is one structural factor cited for the declining corporate share

A notable feature of the Income Tax Act, 2025 is the extension of search-and-seizure powers to cover "virtual digital space" — email accounts, social media, cloud storage, and other digital assets — in addition to physical premises, which earlier had to be authorised through summons or warrant-like internal procedures under the 1961 Act's search provisions.

Key Details

• The provision empowers tax authorities to override passwords and access codes for digital devices and online accounts during search operations, without a judicial warrant, as search authorisation under the Income-tax framework is granted internally by designated senior officials rather than by a court
• The "reasons to believe" recorded before authorising a search are, as under the earlier law, not required to be disclosed to the assessee or shown to appellate authorities
• These expanded digital search provisions have been challenged before the Supreme Court in a public interest petition on privacy grounds
• Compliance-side changes in the new Act include restructured provisions on filing, assessment, and rectification timelines, which the Committee's discussion suggests have produced early-stage implementation glitches