Budget 2026: A Roadmap for Rationalizing Tax Procedures and Easing Compliance Burdens
As the Union Budget 2026 approaches, the discourse among tax professionals and the assessee community has shifted from merely seeking lower rates to demanding a more robust, fair, and accountable procedural framework. While the digitization of tax compliance through the Central Processing Centre (CPC) and the National Faceless Appeal Centre (NFAC) has streamlined return processing, significant bottlenecks remain in the areas of rectification, condonation, and the resolution of high-pitched assessments.
The current fiscal landscape is characterized by a dichotomy between the Old and New Tax Regimes, creating confusion regarding long-term savings and investment planning. Furthermore, the aggressive recovery mechanisms and the lack of reciprocity in timelines between the Department and the assessee require urgent legislative attention. This article explores the critical areas where the Income Tax Act 2025 (and corresponding provisions of the Income Tax Act 1961) requires amendment to foster a non-adversarial tax environment.
1. Streamlining Rectification and Condonation Proceedings
One of the most persistent grievances faced by the assessee is the asymmetry in compliance timelines. While the law mandates strict adherence to deadlines by the assessee for filing returns or responding to notices, there is often no corresponding statutory time limit for the Department to dispose of remedial petitions.
1.1 The Need for Reciprocity in Rectification
Under the current framework, specifically regarding rectification petitions filed under Section 287 of the Income Tax Act 2025 (corresponding to Section 154 of the Income Tax Act 1961), the Assessing Officer (AO), CPC, or NFAC is legally permitted up to six months to dispose of a petition. Conversely, when a demand is raised, the assessee is typically granted only 30 days to pay the disputed amount.
This creates an inequitable scenario. An assessee may identify a clerical error in the intimation order and file a rectification request within the 30-day window. However, the Department may take half a year to process this request. In the interim, the demand remains outstanding, and the assessee is often coerced into paying at least 20% of the disputed demand to avoid being treated as an assessee-in-default.
Proposed Reform:
To ensure equity, the statute should be amended to enforce a 30-day deadline for the AO/CPC/NFAC to dispose of rectification petitions.
Legislative Suggestion: If the rectification order is not passed within 30 days of filing, the petition should be "deemed to be allowed." Furthermore, once a rectification petition is filed, there should be an automatic stay on the collection of the disputed demand until the petition is disposed of.
1.2 Appellate Rectification and Condonation Delays
Similar delays plague the appellate stage. Currently, if an error exists in an order passed by the CIT (Appeals), there is no statutory timeline for disposing of a rectification application. A mandatory 30-day disposal window is essential here as well.
Furthermore, petitions for the condonation of delay—such as those for filing Form 10 to claim exemptions—often languish with the CIT (Exemptions) for years. The delay in processing these petitions results in the withdrawal of exemptions and the levying of heavy taxes. A strict 30-day timeline for disposing of condonation petitions and consequential revisional orders is necessary to prevent undue financial hardship and blockage of refunds.
2. The Conundrum of Dual Tax Regimes
The coexistence of the Old Tax Regime (OTR) and the New Tax Regime (NTR) has led to significant confusion regarding tax planning. The Income Tax Act 2025 presents a structure where the NTR offers lower rates but removes exemptions, while the OTR retains high rates with deductions.
2.1 Anomalies in Rates and Rebates
The tax slabs under the Income Tax Act 2025 for the new regime are structured as follows: