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

Members of the Parliamentary Standing Committee on Finance, cutting across party lines, criticised the present Income Tax regime for relying excessively on what they described as “punitive action” and granting tax officials significant scope for overreach, at a meeting on Thursday (September 3, 2026).

The panel, headed by BJP MP Bhartruhari Mahtab, met to discuss “Direct Tax Reforms: Simplification, Rationalisation and Ease of Compliance” with representatives of the Department of Revenue in the Finance Ministry and the Central Board of Direct Taxes (CBDT).

The committee also flagged compliance-related glitches in the implementation of the Income Tax Act, 2026, and sought additional information from the CBDT on its impact, including changes in tax revenue collections, the number of assessees, and the volume of pending litigation.

Latest GDP figures

According to sources, at least one member raised the controversy surrounding the latest Gross Domestic Product (GDP) estimates, questioning the reliability of official growth figures in the context of former Union Finance Secretary Subhash Garg’s claim that India’s economy expanded by only 2.6% in the June quarter rather than the officially reported 7.8%.

“The issue was not on the agenda today, so it was not discussed further,” a committee member said.

Two themes dominated the discussions. First, members expressed concern over the growing contribution of individual income taxpayers relative to corporate tax collections. Some pointed out that in several economies comparable to India, corporate tax collections significantly exceed those from individual taxpayers.

Second, members criticised what they viewed as the Income Tax Department’s heavy-handed approach to enforcement.

“Why should all income taxpayers be treated as criminals? There is a spate of notices being issued, leaving taxpayers scrambling to prove that they have complied with all rules, while the rules themselves keep changing, sometimes even retrospectively,” a ruling party member said.

Speaking to reporters after the meeting, Mr. Mahtab said that the Income Tax Act, 2026, had come into force on April 1 this year and that the committee wanted to assess its impact after five months of implementation.

He said the panel sought to examine whether the number of assessees had increased, whether tax revenues had risen and whether litigation had declined following the changes.

“A lot of data has been provided to us today, and it appears that as the economy remains buoyant, income tax revenue has also increased substantially,” he said.

Reducing litigation

However, Mr. Mahtab acknowledged shortcomings in the implementation of the law, particularly in reducing litigation.

“There are certain glitches relating to cases pending at the appellate level and also to the number of cases being decided in the High Courts, where the Income Tax Department succeeds in only about 14% of cases,” he said.

The committee also discussed the functioning of technology-driven tax administration and faceless assessment mechanisms. Mr. Mahtab said assessees continued to face certain operational issues that required corrective measures.

“Technology has been put in place, faceless decisions are being taken, and certain glitches are coming before the assessee. To mitigate those glitches, certain steps need to be taken,” he said.

The MP added that several members had raised concerns relating to different categories of assessees and that these issues would be pursued further with the tax authorities.

Mr. Mahtab said the committee had posed a number of queries and expected detailed responses from officials within the next two to three weeks.