Income-tax enforcement must be used as last step: FM Nirmala Sitharaman

NEW DELHI: Enforcement measures should only be used as a last resort by tax officers, finance minister Nirmala Sitharaman said Wednesday. She also laid emphasis on speedy issue of refunds and following of due process to encourage voluntary compliance.

"The (tax) department must exercise its powers judiciously ensuring that taxpayers and businesses are not subjected to unnecessary harassment. The authority vested in our officers is meant to ensure compliance and not to create fear," Sitharaman said at an event to celebrate 165th year of income tax in India.

"Kindly ensure that the notices, letters or enquiries sent through email are so worded that they are simple and straightforward. Use enforcement measures as a last resort," she said while addressing income tax officers.


According to Sitharaman, language currently being used in tax notices and letters is technical and convoluted, confusing and frightening the average taxpayer.

"Can we explore issuing simple, easy-to-understand notices so that our communication is accessible," she said while adding that notices need to be accompanied by the reasons for them being issued.

Commenting on income-tax reforms in the works, Sitharaman said: "Within six months we will have some part of the Income Tax Act written in simple easy-to-understand language. It'll be done keeping in mind Prime Minister Narendra Modi's vision of a seamless, painless and faceless taxation system."

The proposed reforms in the Act are aimed at simplified taxes, improved taxpayer services, tax certainty, and reducing litigation.


Highlighting the widespread adoption of the new income-tax regime introduced in fiscal 2020-21, Sitharaman said, "Within two years of bringing in the New Tax Regime, 72% of all taxpayers have moved to it from the Old Tax regime, showing that it has been accepted as a very well thought-through system wherein the rates are simple, without issues of exemptions and compliances."

Commenting on widening of the tax net, she said about 5.86 million income tax returns (ITRs) were received from first-time tax filers. She also said 12.1 million returns have been assessed within 24 hours but there is a need to impr

ove the turnaround time for issuing tax refunds.

According to Sitharaman, India's direct taxation regime is understanding the requirement of its people and allowing them to transition towards an easier tax system. "Second tax regime is simple, no exemptions and headaches," she said.

Mentioning details about income tax returns being filed till July 31, 2024, Central Board of Direct Taxes (CBDT) chairman Ravi Agrawal said net collections have risen by 17.7% and number of returns being filed 7.5% over the previous year. Agarwal also said a record 125 Advance Pricing Agreements were signed in fiscal 2023-24.