On February 13, 2025, Finance Minister Nirmala Sitharaman introduced the New Income Tax Bill 2025 during the Lok Sabha session, marking a significant step toward overhauling the existing Income Tax Act of 1961. This long-anticipated legislation aims to simplify the current tax framework and reduce unnecessary complexity faced by millions of taxpayers.
The New Income Tax Bill is set to replace the existing 823-page document, which has been amended 65 times, resulting in cumbersome language and voluminous redundancies. The core goal of the bill is to present tax laws more clearly, making them user-friendly for both tax administrators and citizens alike.
One of the most noteworthy changes is the introduction of the term "tax year" to replace the traditional terms "previous year" and "assessment year." This adjustment not only clarifies the timeline for tax obligations but aligns India’s tax terminology with practices used internationally, enhancing comprehension for all stakeholders.
According to the Finance Ministry, the current Income Tax Act consists of 819 effective sections, whereas the New Income Tax Bill will present only 536. This reduction is part of the government's effort to streamline legislation, facilitating easier navigation and application of tax laws. Redundant clauses and confusing legal jargon have been omitted to create a more concise statute.
For example, obsolete provisions, including those pertaining to National Saving Scheme deductions, have been eliminated. Sitharaman highlighted the necessity of these changes by stating, "The simplification exercise encompasses certain aspects including redundant provisions of the Income Tax Act which have been removed." This is expected to not only clarify the bill's intent but also reduce the volume of conflicting interpretations.
The structure of the new bill follows a more simplified format, with chapters and sections organized systematically. Unlike the existing law, the new framework uses straightforward language, incorporating tables and schematic presentations for provisions relating to tax deduction at source (TDS) and other aspects, which may significantly ease the filing process for taxpayers.
Experts have praised the bill's drafting approach, with taxation leader CA Chintan Vajani commenting on its user-centric orientation, stating, "To make tax laws more concise, clear, and user-friendly, the Finance Minister has introduced the Income Tax Bill 2025 to overhaul the existing tax framework." This reflects wider consultations with stakeholders, aimed at garnering feedback to mitigate tax-related conflicts.
Once passed, the bill aims to take effect on April 1, 2026, following its review by the selected parliamentary committee. Sitharaman has urged for this committee to expedite their evaluation, submitting their report by the start of the next budget session.
Despite the proposed changes, it is important to note there will be no alterations to existing tax slabs or rates. These pivotal elements are retained to offer predictability and stability for taxpayers, allowing them to plan their finances without fear of sudden fiscal adjustments.
The overarching ambition of this legislative initiative is to facilitate increased compliance through clarity and certainty. Sitharaman maintains this is integral to the bill's design: "The Income Tax Act was originally enacted in 1961 and came effective from 1962. At the time it had only 298 sections. We are now bringing it down to 536 sections which aim to simplify the tax framework."
While some opposition members have voiced concerns about the complexity of the new bill, arguing it might inadvertently complicate matters for taxpayers, the Finance Minister stands firm on the reforms, stating, "Substantial changes have been made to the old law. The number of words has come down by half, and sections and chapters have been cut."
The bill's introduction has sparked considerable debate, highlighting the government’s commitment to modernizing tax laws accessible to citizens and allowing the tax administration to function efficiently. Phase one will involve passing the bill through Parliament and establishing the necessary rules and regulations post-enactment.
Overall, the New Income Tax Bill 2025 signifies India's commitment to revising its financial regulations, reflecting contemporary needs and paving the way for smoother operations within the tax framework.