The Indian Parliament witnessed significant developments on February 13, 2025, when Finance Minister Nirmala Sitharaman introduced the Income Tax Bill 2025 during the Lok Sabha session. This much-anticipated legislation aims to replace the archaic Income Tax Act of 1961, which has been criticized for its complexity and extensive number of amendments over the years.
The 622-page bill consists of 536 sections and 16 schedules, with the goal of simplifying tax frameworks and making the language of tax laws more accessible to the general public. Notably, the bill is set to introduce the concept of 'tax year,' which will replace the previously used terms 'assessment year' and 'previous year.' This move is hailed as part of the government's initiative to ease the tax filing process.
Despite these positive proclamations, the bill faced immediate backlash from opposition parties, leading to walkouts from several MPs. Sitharaman urged Parliament to refer the bill to a select committee, allowing for thorough review and possible amendments before the final vote.
While presenting the bill, Sitharaman emphasized the reductions made compared to the older statute. She noted, "The Income Tax Act was originally enacted in 1961 and come to effect in 1962… At present, there are 819 sections. Now, we’re bringing it down to 536." This call for revision aims at not only simplifying the structure of tax laws but also reducing the number of sections through the removal of redundant provisions.
The proposal has been met with skepticism. Opposition MP N.K. Premachandran from Kerala complained about the increased sections, yet Sitharaman defended the changes arguing for greater clarity and reduced complexity, stating, "Substantial changes are being made… Number of words have come down by half. Sections and chapters have come down." She reiterated her commitment to improving taxpayer experience with simpler language and structure, emphasizing the new bill is written "in plain simple English and plain simple Hindi."
Critics, including TMC MP Sougata Ray, claimed the changes were merely “mechanical,” to which Sitharaman responded, “They’re not mechanical changes. It’s about transformation.” The significance of the new terminologies is pivotal; moving from 'assessment year' to 'tax year' is expected to clarify processes for individuals filing income returns.
Among the proposed changes, the new bill seeks to provide tax audit relief for businesses with turnovers up to ₹10 crore primarily engaging in digital transactions. This could facilitate ease for small businesses, pushing for greater adoption of digital methods. The revised bill reflects current business practices and helps align the tax framework with contemporary financial transactions.
Noteworthy is the bill's historical importance, as it could become the first comprehensive revision of India's income tax laws since the implementation of the 1961 Act. Sitharaman's commitment to revising tax laws follows the government's broader objectives of 'Ease of Doing Business' and providing clarity to taxpayers about their responsibilities. This comprehensive revamp reflects the Indian administration's efforts to modernize fiscal administration.
While some criticisms point to the potential pitfalls of increased complexity, the government reassured citizens of the overall improvement. For example, with the new bill, tax compliance and structures around Tax Deduction at Source (TDS) are expected to be simplified through tables allowing taxpayers to understand their tax responsibilities rapidly.
The income tax sections will also see changes to the definitions of salary and what constitutes taxable income. Specifically, the remuneration received by partners of firms will no longer be classified under 'salary' for tax purposes. This change aims to clarify tax structures for various income categories, delineate personal from business taxation, and streamline compliance processes.
With the bill moving to the select committee, the government anticipates constructive discourse leading to amendments based on the feedback offered. The committee will submit its report to Parliament by the first day of the next session, paving the way for more discussion and refinement of the provisions.
Opposition has raised concerns not just about the complexity but also about how it may affect taxpayer engagement. There is anticipation around whether the revised bill will fulfill its promise of simplification or merely alter existing structures without achieving the broader objectives of tax justice and ease of compliance. Many hope the discussions to follow this initial presentation will address these valid concerns comprehensively.
Once enacted, the new Income Tax Bill 2025 would come to effect from April 1, 2026, potentially redefining the tax framework for millions of taxpayers across the country.