CBDT Urged to Issue Master Circular

'In practical terms, a Master Circular is not merely desirable; it is a necessary transition tool to ensure that the promise of simplification under the Income-Tax Act, 2025, is fully realised.'

With the rollout of the Income-Tax Act, 2025, tax experts have urged the Central Board of Direct Taxes (CBDT) to issue a 'Master Circular' clarifying the applicability of legacy circulars in the new regime.

Over the years, the CBDT has issued numerous circulars and clarifications under the Income-tax Act, 1961, to interpret provisions and address taxpayer concerns.

Income-Tax Act 2025 transition issues

However, the transition to the new law, where several provisions have been removed, renumbered, or restructured, has disrupted the linkage between these circulars and the revised provisions.

Experts say this has created uncertainty for both taxpayers and tax officers, who must now assess the continued relevance of legacy guidance without a clear framework, raising the risk of inconsistent interpretation.

CBDT Master Circular demand grows

Richa Sawhney, partner at Grant Thornton Bharat, pointed out that some circulars might have lost relevance due to changes in the law or judicial pronouncements, making their continued applicability unclear.

She suggested that a Master Circular should categorise legacy guidance into applicable, redundant, and withdrawn circulars to ensure consistency in implementation.

According to her, issuing a Master Circular would reinforce the objective of the 2025 Act to reduce litigation and promote voluntary compliance.

"In practical terms, a Master Circular is not merely desirable; it is a necessary transition tool to ensure that the promise of simplification under the Income-Tax Act, 2025, is fully realised," Sawhney said.

Legacy circulars create tax ambiguity

The issue stems from Section 536 of the new law.

The Section deals with repeal and savings.

It provides that circulars, directions, and notifications issued under the 1961 Act will continue to apply, provided they are not inconsistent with the provisions of the new law.

Section 536 interpretation concerns

However, experts note that the phrase "so far as it is not inconsistent" remains open to interpretation, particularly where provisions in the new law have undergone significant languages changes as compared to the old law.

Chetan Daga, partner at AdvantEdge Consulting, said the expression created ambiguity in determining whether existing circulars remained valid under the new framework.

"It is necessary that the tax department clarifies the expression 'so far as it is not inconsistent' or issues a Master Circular explaining which of the circulars under the old law shall or shall not apply in the new Act," Daga stated.

Experts warn of litigation risks

According to Abhishek A Rastogi, partner at Rastogi Chambers, even minor drafting changes can raise questions about the continued applicability of circulars, making interpretation a subjective exercise.

"The government should issue a comprehensive Master Circular listing applicable and redundant circulars under the new law. Such a move would reduce disputes, ensure uniform application, and support ease of doing business during the transition," added Rastogi.

Tax professionals point out that while the Reserve Bank of India has long provided clarity through Master Circulars under the Foreign Exchange Management Act (FEMA) on legacy foreign-exchange matters, a similar consolidated Master Circular from the CBDT on legacy tax guidance would reduce uncertainty during the shift to the Income-Tax Act, 2025.

Feature Presentation: Ashish Narsale/Rediff