Will replace 298 sections, 14 schedules
NEW DELHI, Feb 12:
The eagerly awaited new income tax bill aims to replace complex terms such as assessment and previous year with a more straightforward term, ‘tax year,’ as part of an effort to simplify the language by eliminating unnecessary provisos and explanations.
The Income Tax Bill, 2025, anticipated to be presented in Parliament on Thursday, plans to overhaul the existing six-decade-old legislation by replacing 298 sections and 14 schedules with a more succinct 622-page law consisting of 526 sections, 23 chapters, and 16 schedules.
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This Bill introduces a novel concept of ‘tax year,’ which will be defined as the 12-month period starting from April 1. This will supersede the existing framework of assessment and previous years.
Under the current system, income generated in the previous year (PY), for example, from April 2024 to March 2025, is assessed in the subsequent assessment year (AY) 2025-26.
Once implemented on April 1, 2026, and following scrutiny by the Standing Committee and Parliament approval, this new bill will eliminate superfluous sections, such as those concerning Fringe Benefit Tax. It aims to enhance clarity by removing explanations and provisos, making the text easier to digest.
Moreover, the term ‘notwithstanding,’ which has seen overuse in the Income Tax Act of 1961, has been replaced throughout the new Bill with the term ‘irrespective.’
Additionally, the Bill employs more concise sentences and is designed to be more user-friendly, incorporating tables and formulas. These tables will detail provisions for TDS, presumptive taxation, salaries, and deductions for bad debts.
A ‘Taxpayer’s Charter’ is included in the Bill, clearly outlining the rights and responsibilities of taxpayers.
The previous terminology of ‘previous year’ in the Income Tax Act, 1961 will now be replaced with ‘tax year,’ as the assessment year concept is eliminated. Henceforth, for income earned in the previous year (for instance, 2023-24), tax will be recorded in the corresponding tax year defined in the new bill.
Upon its introduction in the Lok Sabha, likely on Thursday, the Bill will be forwarded to the Parliamentary Standing Committee on Finance for further analysis.
The accompanying Statement of Objects and Reasons for the new I-T Bill notes that the Income-tax Act, established in 1961, has undergone numerous amendments over the past 60 years.
“These amendments have resulted in an overburdened basic structure and have rendered the language complex, thereby increasing compliance costs for taxpayers and hindering the efficiency of direct-tax administration,” it states.
Concerns regarding the complicated provisions and structure of the Income-tax Act have also been raised by tax administrators, practitioners, and taxpayers alike.
This led the Government, in the July 2024 budget, to announce a comprehensive review of the Income-tax Act, 1961, aimed at rendering it concise, clear, and easily understandable.
Consequently, the Income-tax Bill, 2025 has been drafted with the intention to repeal and replace the Income-tax Act of 1961.
The Income Tax Bill, 2025 consists of 536 sections, exceeding the current Act’s 298 sections, with 16 schedules compared to the existing 14. Nevertheless, the count of chapters remains constant at 23. The total page count has been significantly cut down to 622 pages, nearly half of the current voluminous Act that incorporates amendments from the last sixty years.
When the Income Tax Act, 1961 was first introduced, it comprised 880 pages.
The proposed law promises clearer tax treatment for employees’ stock options (ESOPs) to mitigate tax disputes and includes judicial interpretations spanning the last 60 years for added clarity. Furthermore, income excluded from total income is repositioned into schedules to simplify the statute.
Commenting on the Bill, Sandeep Jhunjhunwala, M&A Tax Partner at Nangia Andersen LLP, noted that all TDS-related sections have been consolidated into a single clause with simplified tables for better understanding.
“This suggests that once this bill is notified, significant changes will be necessary in forms and utilities for reporting purposes,” he stated.
Finance Minister Nirmala Sitharaman announced during the Budget 2025-26 that the new tax bill would be presented in this Parliament session.
Initially, Sitharaman announced a comprehensive review of the Income-tax Act, 1961 in the July 2024 Budget.
The CBDT established an internal committee to oversee this review and to ensure the Act’s clarity and conciseness, aiming to minimize disputes and litigation while providing greater tax certainty to stakeholders. Additionally, 22 specialized sub-committees have been formed to evaluate various aspects of the Income Tax Act. (PTI)
Public feedback and suggestions have been solicited across four main categories: language simplification, litigation reduction, compliance reduction, and the removal of redundant or obsolete provisions.
The income tax department has received around 6,500 suggestions from stakeholders regarding the review of the Income Tax Act. (PTI)
