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The new IT Bill has taken a significant step in making the law simple and accessible | Photo Credit: Mrinal Pal
The existing Income tax Act, introduced in 1961, has been the bedrock of the country’s fiscal framework for over six decades.
After frequent amendments aimed at keeping pace with changing tax policies and overruling judicial interpretations, the Act has transformed and in some ways changed beyond recognition.
The Finance Minister in her Budget Speech of 2024, announced a comprehensive review of the income tax legislation to make it clear and lucid.
A Departmental committee was set up to undertake this task over six months, actively seeking stakeholders’ inputs. It received more than 20,000 suggestions from stakeholders on four pillars identified by the Government viz. simplification of language, reducing litigation, reducing compliance burden and removing redundant provisions.
As part of Budget 2025, the Finance Minister announced the tabling of the new bill in Parliament in the current budget session. The new bill is poised to make a marked shift in the structure and language of the legislation and make it more reader friendly – without change in tax policy or tax rates.
While the fine-print may require in-depth analysis, we have provided an overview below in respect of key aspects of the new bill.
The new Income Tax Bill 2025 reduces the section count from over 800 to 536 with 16 schedules instead of the current 14. While the text of the new Bill runs into 5671 A4 pages, it is actually shorter in word count by about 50% when compared to the existing Act.
The new Bill preserves the familiar 23-Chapter structure, heads of income, substantive provisions and the assessment & appeal procedures with tax rates to be set by annual Finance Acts.
· Key simplifications in the bill include:
o Replacing the terms “assessment year” and “previous year” with consistent “tax year”.
o Simplifying language by removing provisos and explanations, and replacing archaic phrases (e.g., changing “Notwithstanding anything contained” to “Irrespective of anything contained”) to enhance clarity.
o Introducing formulas and tables to succinctly convey information on topics like salary perquisites, presumptive taxation, tax deduction/ collection at source (TDS/ TCS) rates and thresholds, etc.
o Streamlining enumeration of multiple items by moving them to distinct schedules – for instance, the existing Section 10 enumerating various types of exempt incomes has been moved to six different schedules.
o Use of active voice instead of passive voice
o Removal of outdated sections that are no longer applicable, such as fringe benefits, preemptive purchase of immovable property by Government .
The new bill seeks to reduce compliance burden on certain aspects. For instance, it permits applying for lower TDS/TCS certificates for all TDS/TCS provisions instead of select provisions as per existing Act. Employee will not be required to produce hospital certificate and receipt for claiming medical treatment perquisite exemption.
The new Bill is intended to take effect from 1 April 2026 i.e tax year 2026-27 will be first year under new law. The income for financial year 2025-26 will be computed as per old Act but return filing and assessments, etc will be under new law.
The new Bill has provisions to ensure smooth transition to the new law by preserving losses, credits, etc. under the old Act and continuity of pending proceedings. It also provides the Central Government power to remove any transitional difficulties upto a period of 3 years.
While new Bill does not intend to make any policy change, certain unintended anomalies appear to have crept in the process of simplification which hopefully may be addressed before enactment. For example, a domestic company opting for concessional tax regime (effective tax rate of 25.17%) will not be entitled to claim deduction for inter-corporate dividends which the existing Act permits.
The Income Tax Bill 2025 is a significant move towards a more straightforward tax legislation. It focuses on making tax laws easier to understand and easier to comply.
The next steps for the bill involve a thorough review by a parliamentary committee with stakeholder consultation, followed by Union Cabinet approval and final parliamentary consent.
The writer is Partner and National Leader, International Tax and Transaction Services, EY India; Ravikant Kamath, Tax Partner, EY India, also contributed to the article
Published on February 18, 2025
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