India has begun to merge its tax departments. For the upcoming Budget, the departments of direct and indirect tax will operate under a single financial authority - department of revenue.

The orders were issued over the weekend after top-level consultations within the government. Finance minister Arun Jaitley has given the go-ahead for the step, which is being seen as a major reform of India's tax administration by the investors.

However, a government official said it would be too early to say the two boards will be merged. But the developments are in sync with an evolving trend to create synergy in their functioning. In a similar move, budgetary exercise of departments handling atomic energy has been merged.

"It is just a merger of the demand for grants presented in the Budget papers. The individual identities (of the boards) will remain as it is," said economic affairs secretary Shaktikanta Das.

The two departments will draft the tax policies, but the budgets for carrying out their responsibilities will be handled by the department of revenue.

Till now, the Central Board of Direct Taxes and Central Board of Excise and Customs had separate and independent financial powers to decide how much they would spend on tax generation activities. These included the powers to decide interest rates on tax refunds, and set up offices and units to track tax offences. With the expected roll-out of the goods and services tax and more systems-based tracking of income, there is no need for such independent tax agencies. Parthasarathi Shome, former advisor to the finance minister, in his concluding report to the government had asked for abolition of the differences between the two boards.

In FY16, the total budget of the income tax department is projected at Rs 5,407 crore and that of indirect tax at Rs 5,665 crore. The budget of the revenue department by comparison (excluding transfer of Rs 14,929 crore of compensation to states for value-added tax) is only Rs 780 crore.