Statutory Foundations of the Taxpayer's Charter : Clause 240 of the Income Tax Bill, 2025 Vs. Section 119A of the Income-tax Act, 1961

Clause 240 Taxpayer's Charter.

Income Tax Bill, 2025

Introduction

The concept of a Taxpayer's Charter represents a significant evolution in the relationship between the tax administration and taxpayers in India. Both Clause 240 of the Income Tax Bill, 2025 and Section 119A of the Income-tax Act, 1961 address the statutory foundation for the adoption and administration of such a Charter. The introduction of these provisions signals a legislative intent to institutionalize taxpayer rights and obligations, enhance transparency, and foster trust between the Income Tax Department and the public.

This commentary provides an in-depth analysis of Clause 240 of the Income Tax Bill, 2025, examining its objectives, structure, and practical implications. It further undertakes a comprehensive comparison with the existing Section 119A of the Income Tax Act, 1961, highlighting both the continuity and any divergences in legislative approach. The discussion also situates these provisions within the broader context of taxpayer rights, administrative law, and tax governance in India.

Objective and Purpose

The legislative intent behind both Clause 240 and Section 119A is to formally recognize and protect the rights and expectations of taxpayers while clarifying the obligations of tax authorities. The Taxpayer's Charter is envisaged as a codified statement of principles and standards governing the conduct of tax administration, with the dual aim of:

• Empowering taxpayers-by guaranteeing fair treatment, transparency, and accountability in tax proceedings.
• Guiding tax authorities-by setting out clear expectations and ethical standards for their interactions with taxpayers.

Historically, the relationship between tax authorities and taxpayers in India has been characterized by a degree of mistrust, opacity, and adversarial conduct. The introduction of a statutory Taxpayer's Charter marks a paradigm shift towards a service-oriented and rights-based approach to tax administration. It aligns with global best practices, as seen in jurisdictions such as the United Kingdom (HMRC Charter), United States (Taxpayer Bill of Rights), and Australia (Taxpayers' Charter).

The policy rationale is to foster voluntary compliance, reduce litigation, and enhance the overall efficiency and credibility of the tax system. By embedding the Charter within the statute, Parliament signals its commitment to upholding taxpayer rights as a matter of legal obligation rather than mere administrative discretion.

Detailed Analysis

1. Textual Analysis of Clause 240 of the Income Tax Bill, 2025

Text: "The Board shall adopt and declare a Charter for Taxpayers and issue such orders, instructions, directions or guidelines to other income-tax authorities as it considers fit for the administration of such Charter."

Clause 240 is succinct but significant in its scope. It comprises two primary mandates:

1. Adoption and Declaration of the Charter: The Central Board of Direct Taxes (CBDT) is expressly required to adopt and publicly declare a Charter for Taxpayers. The use of the word "shall" denotes a mandatory obligation.
2. Issuance of Administrative Directions: The CBDT is empowered to issue "orders, instructions, directions or guidelines" to subordinate income-tax authorities for the administration of the Charter. The phrase "as it considers fit" vests discretion in the Board regarding the nature and content of such directions.

The provision is broadly worded, granting the Board substantial latitude in both the formulation of the Charter and the mechanisms for its implementation. There is, however, no express specification in the clause regarding the contents, enforceability, or review mechanisms for the Charter.

2. Textual Analysis of Section 119A of the Income-tax Act, 1961

Text: "The Board shall adopt and declare a Taxpayer's Charter and issue such orders, instructions, directions or guidelines to other income-tax authorities as it may deem fit for the administration of such Charter."

Section 119A, inserted by the Finance Act, 2020 (effective 1 April 2020), is nearly identical in language to Clause 240. The key elements are:

• Mandatory adoption and declaration of a Taxpayer's Charter by the CBDT.
• Discretionary power to issue orders, instructions, directions, or guidelines to other income-tax authorities for the administration of the Charter.

The provision is similarly silent on the substantive rights or obligations that may be contained within the Charter, the process for its formulation, or any mechanisms for enforcement or review.

3. Comparative Analysis: Clause 240 vs. Section 119A

Upon close examination, Clause 240 of the 2025 Bill and Section 119A of the 1961 Act are functionally and textually analogous. The only slight variation is in the phraseology: Clause 240 uses "as it considers fit," while Section 119A uses "as it may deem fit." Both phrases confer a similar degree of administrative discretion on the Board.

No substantive difference in legislative intent or operational scope can be discerned from this minor linguistic variation. Both provisions:

• Impose a statutory duty on the Board to adopt and declare a Taxpayer's Charter.
• Empower the Board to issue administrative instruments for the effective implementation of the Charter.
• Do not prescribe the contents, structure, or legal enforceability of the Charter.
• Are silent on the consequences of non-compliance by tax authorities or remedies for aggrieved taxpayers.

Thus, Clause 240 essentially continues the legislative approach inaugurated by Section 119A, reaffirming the centrality of the Taxpayer's Charter in the architecture of tax administration.

4. Key Features and Issues for Interpretation

• Mandatory Nature: Both provisions use the word "shall" in relation to the adoption and declaration of the Charter, making it a binding statutory obligation for the Board.
• Discretion in Administration: The Board enjoys wide discretion in issuing directions for the administration of the Charter, allowing for flexibility but also raising questions about uniformity and accountability.
• Absence of Substantive Rights/Obligations: Neither provision enumerates specific rights or obligations; the substantive content is left to the Board's discretion.
• Lack of Enforcement Mechanisms: There is no express provision regarding the legal enforceability of the Charter, remedies for breach, or oversight mechanisms.

These features reflect a deliberate legislative choice to provide a broad framework, leaving operational details to be fleshed out by the Board through subordinate legislation or administrative action.

Practical Implications

1. For Taxpayers

• Recognition of Rights: The statutory mandate for a Taxpayer's Charter provides formal recognition of taxpayer rights and expectations, potentially enhancing confidence in the tax system.
• Transparency and Predictability: The Charter, once declared, is expected to set clear standards for the conduct of tax authorities, reducing arbitrariness and enhancing predictability.
• Limitations: In the absence of express statutory remedies, the practical enforceability of the Charter may be limited. Taxpayers may have to rely on administrative grievance redressal mechanisms or judicial review in cases of gross violation.

2. For Tax Authorities

• Administrative Guidance: The Charter and accompanying directions from the Board serve as a code of conduct, guiding tax officers in their interactions with taxpayers.
• Accountability: While the Charter may enhance accountability, the lack of explicit sanctions for non-compliance may dilute its impact unless backed by robust internal monitoring.
• Training and Capacity Building: Effective implementation will require training of tax officers and systemic changes in administrative processes to align with Charter principles.

3. For the Board (CBDT)

• Policy Leadership: The Board is entrusted with the critical responsibility of formulating, updating, and administering the Charter, shaping the ethos of tax administration.
• Discretion and Flexibility: The broad discretion conferred allows the Board to adapt the Charter and its administration to evolving circumstances, but also places a premium on transparency and stakeholder consultation.

Comparative Analysis with Other Jurisdictions

The concept of a taxpayer's charter is not unique to India. Several advanced tax administrations have adopted similar instruments:

• United Kingdom: The HMRC Charter sets out what taxpayers can expect from HM Revenue and Customs, including standards of respect, professionalism, and support. It is periodically updated following public consultation.
• United States: The IRS Taxpayer Bill of Rights enumerates ten fundamental rights, including the right to be informed, to quality service, and to privacy. These rights are grounded in existing tax law.
• Australia: The Australian Taxation Office's Taxpayers' Charter outlines rights and obligations, with a focus on fair treatment, privacy, and dispute resolution.

A key distinction in these jurisdictions is the degree of legal enforceability and the presence of independent oversight mechanisms (such as ombudsman offices) to address grievances. In India, the Charter's enforceability remains largely administrative unless specific rights are incorporated into substantive law or recognized by courts.

Ambiguities and Potential Issues

• Enforceability: The absence of explicit statutory remedies for breach of the Charter raises questions about its legal status. Is it merely aspirational, or can it be invoked in judicial proceedings?
• Content of the Charter: The statute does not prescribe minimum standards or core rights, leaving the content entirely to the Board. This could result in variability or dilution of taxpayer protections.
• Review and Update Mechanisms: There is no statutory requirement for periodic review, stakeholder consultation, or public participation in the formulation or revision of the Charter.
• Overlap with Other Provisions: The Charter must be harmonized with existing statutory rights and obligations under the Income Tax Act and related laws to avoid confusion or conflict.

Policy Considerations and Future Directions

The statutory recognition of a Taxpayer's Charter is a progressive step, but its effectiveness will depend on several factors:

• Substantive Content: The Charter should enumerate clear, actionable rights and obligations, aligned with international best practices and local realities.
• Legal Status: Consideration should be given to making key rights legally enforceable, either through statutory incorporation or judicial recognition.
• Oversight and Accountability: Establishment of independent grievance redressal mechanisms or ombudsman offices could enhance accountability.
• Stakeholder Engagement: Regular consultation with taxpayers, professionals, and civil society can ensure the Charter remains relevant and effective.

Judicial interpretation will also play a crucial role in clarifying the status and scope of the Charter, particularly in cases of alleged violation by tax authorities.

Conclusion

Clause 240 of the Income Tax Bill, 2025 and Section 119A of the Income-tax Act, 1961, represent a statutory commitment to the protection and promotion of taxpayer rights through the mechanism of a Taxpayer's Charter. While both provisions are substantively similar and reflect a continuity in legislative approach, the true test of their efficacy will lie in the content of the Charter, the robustness of administrative implementation, and the development of effective remedies for taxpayers.

Going forward, it is imperative that the Charter be designed as a living document-responsive to the evolving needs of taxpayers and the tax administration alike. Legislative or judicial clarification on the enforceability of the Charter, coupled with institutional mechanisms for oversight, will be crucial in realizing the transformative potential of these provisions.

---

Full Text:

Clause 240 Taxpayer's Charter.

 

Dated: 28-5-2025