Answer

Income tax is a key source of government revenue, funding public services and development. However, balancing administrative efficiency with citizens’ rights remains a challenge. The Income-Tax Bill, 2025 proposes streamlined processes, but concerns about privacy, due process, and arbitrary taxation persist. 

Tension Between Administrative Efficiency and Citizens’ Rights in the Income-Tax Bill, 2025

• Opaque Search and Seizure Powers: The Bill grants tax authorities sweeping powers to inspect digital records without judicial oversight, endangering privacy rights and due process.
  For example: The Supreme Court in Justice K.S. Puttaswamy v. Union of India (2017) upheld privacy as a fundamental right, but the Bill’s provisions allow tax officials to override access codes, violating this precedent.
• Unchanged Legal Ambiguities: Despite claims of simplification, the Bill retains complex legal terms, making tax laws inaccessible and increasing litigation risks.
• Reassessment Without Clear Criteria: The Bill allows reassessments based on “information” rather than a well-defined “reason to believe” standard, increasing discretionary power.
  For example: Earlier, the phrase “reason to believe” led to excessive litigation, prompting a 2021 amendment, but this Bill still lacks a clear definition of “information”.
• Retaining Cross-Referencing to Old Law: The Bill continues to refer to provisions from the 1961 Act, making compliance cumbersome and reducing transparency.
• Ignoring Alternative Dispute Resolution: The Bill does not prioritize mediation or fast-track dispute resolution, increasing the litigation burden on taxpayers.
  For example: Countries like the UK and Australia have Tax Tribunals that handle disputes efficiently, but India still relies on lengthy court battles.

Balancing Revenue Collection with Privacy, Judicial Oversight, and Good Governance

• Judicial Review of Tax Actions: Courts have consistently checked excessive tax powers, ensuring actions are backed by legitimate legal grounds.
• Constitutional Protection of Privacy: Indian courts have ruled that tax investigations must respect privacy, limiting arbitrary searches.
• Taxpayer Rights and Transparency: Tax reforms have introduced measures like faceless assessments to ensure non-discriminatory and accountable tax administration.
  For example: The Faceless Assessment Scheme (2020) reduced harassment by eliminating direct interaction between taxpayers and officers.
• Alternative Dispute Resolution Mechanisms: To reduce litigation, India has adopted mechanisms like Vivad se Vishwas for tax dispute settlements.
  For example: The Vivad se Vishwas scheme (2020) helped settle nearly 1.48 lakh pending tax cases, ensuring faster dispute resolution.
• Parliamentary Scrutiny of Tax Laws: The government must justify new tax provisions before Parliament, ensuring checks and balances in fiscal legislation.
  For example: The Goods and Services Tax (GST) Council regularly reviews GST rates, considering industry concerns and revenue needs.

Limitations of Fiscal Legislation in India in Balancing Revenue Collection, Privacy, Judicial Oversight, and Good Governance

• Weak Judicial Oversight on Search Powers: Tax authorities have broad search and seizure powers with limited judicial scrutiny, risking misuse.
  For example: The Income-Tax Act, 1961, allows searches based on “reason to believe,” but courts have struggled to define its limits, leading to arbitrary raids.
• Ambiguity in Tax Laws: The tax code remains complex, with frequent amendments and ambiguous provisions, leading to uncertainty and litigation.
  For example: The Retrospective Taxation Policy (2012) led to major disputes, including the Vodafone and Cairn Energy cases, discouraging foreign investment.
• Excessive Executive Discretion: Many tax-related decisions, including reassessments and exemptions, rely on bureaucratic discretion, creating scope for bias and corruption.
  For example: The Income Tax Department’s reassessment powers post-2021 allow reopening cases for 10 years without strong safeguards against abuse.
• Limited Transparency in Tax Administration: The process of tax exemptions, assessments, and appeals lacks full transparency, reducing taxpayer trust.
  For instance: The Electoral Bonds Scheme allowed anonymous donations with tax benefits, raising concerns about opaque political funding and favoritism.
• Inefficiency in Dispute Resolution: India’s tax litigation backlog is massive, with cases pending for years, delaying justice and burdening courts.
  For example: Over 4.83 lakh direct tax cases are pending before tribunals, high courts, and the Supreme Court, slowing revenue realization.

Way Ahead for Better Fiscal Legislation in India

• Stronger Judicial Oversight: Introduce a mandatory judicial review for tax searches and seizures to ensure constitutional compliance.
• Simplifying Tax Laws: Reduce legal jargon, remove outdated provisions, and ensure plain language drafting for better taxpayer understanding.
  For example: The Direct Tax Code (DTC) proposal aimed to simplify tax laws, but delays in implementation have left India with an outdated tax framework.
• Reducing Bureaucratic Discretion: Establish clear, rule-based criteria for tax exemptions, reassessments, and audits to minimize arbitrariness.
  For example: The Faceless Assessment Scheme (2020) was a step forward, but additional safeguards are needed to prevent selective targeting.
• Enhancing Dispute Resolution Mechanisms: Strengthen alternative dispute resolution (ADR) by expanding mediation and settlement mechanisms for tax disputes.
• Ensuring Transparency in Tax Policy: Mandate public consultations before major tax changes and introduce annual tax policy reviews.
  

 As Kautilya advised, A king should collect taxes like a bee gathering honey, without harming the flower. A fine balance between fiscal efficiency and citizens’ rights is the hallmark of a just tax regime. Strengthening judicial oversight, data protection frameworks, and transparent tax administration will ensure compliance without coercion. 

DOWNLOAD PDF