The Union Cabinet is believed to have approved the new Income Tax Bill on Friday. Government officials said the bill is expected to be moved in the Lok Sabha on Monday.

The proposed legislation will replace more than six-decades-old Income Tax Act 1961, which have undergone umpteen numbers of amendments. Finance Minister Nirmala Sitharaman has already announced that once the new bill is introduced, it will be referred to the department-related standing committee for detailed deliberations.

In her Budget speech on February 1, Sitharaman said that with respect to the criminal law, Modi Government had earlier ushered in Bharatiya Nyaya Sanhita replacing Bharatiya Danda Sanhita. “I am happy to inform this august House and the country that the new income-tax bill will carry forward the same spirit of Nyaya. The new Bill will be clear and direct in text with close to half of the present law, in terms of both chapters and words. It will be simple to understand for taxpayers and tax administration, leading to tax certainty and reduced litigation,” she said.

Nixing shortcomings

Experts feel that a transition is necessitated to align the tax system with practicalities and to plug shortcomings in the existing tax law. With tax laws evolving globally, making variations to an outdated law may not yield desired outcomes and an entirely new statute may be required.

According to Sandeep Jhunjhunwala, M&A Tax Partner at Nangia Andersen LLP, the proposed legislation is likely to unveil a progressive tax regime with an expectation to reinvent a simple, fair, conducive and enforceable tax law. “Rationalisation of the current, fairly complicated capital gains tax regime is likely to be considered in the new taxes code. Simplification of the capital gains tax regime by minimising the categorisation of capital assets, their period of holding and related tax rates could be forthcoming. TDS disputes in cross-border transactions is yet another area of tussle that the new code could possibly address with possible procedures to ease TDS compliances,” he said.

Amit Maheshwari, Tax Partner with AKM Global, said that the Bill is likely to be simpler, easy to understand and comply. Changes such as deletion of outdated sections, lack of cross referencing of act and rules, lesser number of proviso and clauses are expected. Further, compliance and assessment procedures are expected to be technology-driven. “The penalty mechanism is also expected to be overhauled to make them exclusively for stringent defaults. Some of the fundamental changes such as simplification of residential status provisions, finalisation of permanent establishment attribution rules are also needed but the mandate of new Tax Bill is to simplify the law and not likely to drive these fundamental changes,” he said.

Published on February 7, 2025