User-Friendly, Simpler Language and Easy Calculations Among Key Highlights of New Income Tax Bill

New Delhi: The Income Tax Bill 2025, which introduces the concept of a 'tax year' and eliminates the outdated terms 'previous year' and 'assessment year,' is expected to be presented in Parliament on Thursday.

The proposed legislation consists of 536 sections, 23 chapters, and 16 schedules within 622 pages. While it does not impose any new taxes, it aims to simplify the language of the existing Income Tax Act, 1961.

Replacing an Outdated Law with a More Readable Version

The current law, which has been in place for over six decades, originally contained 298 sections and 14 schedules, spanning 880 pages. Over the years, numerous amendments have made it increasingly complex. The new bill seeks to replace the Income Tax Act, 1961, and is set to take effect from April 1, 2026.

Removing Redundant Provisions and Improving Clarity

Redundant provisions, such as those related to Fringe Benefit Tax, have been removed. The bill is free from excessive explanations and provisos, making it easier to understand. Additionally, the commonly used term 'notwithstanding' in the old law has been largely replaced with 'irrespective' for better clarity.

User-Friendly Formatting for Easier Understanding

The new bill features concise sentences and user-friendly formatting, including tables and formulae, to enhance readability. It organizes key provisions related to TDS, presumptive taxation, salaries, and bad debt deductions into structured tables.

Taxpayer’s Charter to Define Rights and Responsibilities

A key highlight of the bill is the inclusion of a 'Taxpayer’s Charter,' outlining the rights and responsibilities of taxpayers. It also replaces the term 'previous year' with 'tax year,' eliminating the concept of an assessment year. Under the current system, income earned in a particular year (e.g., 2023-24) is taxed in the following year (e.g., 2024-25). The new bill streamlines this by introducing a single ‘tax year’ concept.

Bill to Undergo Parliamentary Review

Once tabled in the Lok Sabha, the bill will be referred to the Parliamentary Standing Committee on Finance for further review.

According to the bill’s Statement of Objects and Reasons, the Income Tax Act, 1961, has undergone multiple amendments over the past 60 years, making it overly complex and difficult for taxpayers to comply with. The increased complexity has also burdened tax administration.

Public and Expert Input Helped Shape the New Bill

Concerns regarding the act’s complicated structure and provisions have been raised by tax administrators, practitioners, and taxpayers. In response, the government announced a time-bound review of the law in the July 2024 Budget to make it more concise, clear, and easier to understand. The Income Tax Bill 2025 has been drafted to repeal and replace the existing legislation.

More Sections, But a Shorter and Clearer Law

Although the new bill contains 536 sections compared to the current law's 298, it maintains 23 chapters while increasing schedules from 14 to 16. However, the overall length has been significantly reduced to 622 pages, nearly half the size of the current version.

ESOPs, Exemptions, and TDS Rules

The proposed bill provides clearer tax treatment for employee stock options (ESOPs) to reduce disputes and incorporates judicial rulings from the past six decades for better clarity. Additionally, income categories that are exempt from taxation have been moved to schedules for easier reference.

Sandeep Jhunjhunwala, M&A Tax Partner at Nangia Andersen LLP, noted that the bill consolidates all TDS-related provisions under a single clause with simplified tables, making it easier to understand. He added that once the bill is enacted, significant changes will be required in tax forms and reporting utilities.

Finance Minister Nirmala Sitharaman had announced in the 2025-26 Budget that the bill would be introduced in the current parliamentary session. The comprehensive review of the Income Tax Act, 1961, was first proposed in the July 2024 Budget.

To oversee this review, the Central Board of Direct Taxes (CBDT) formed an internal committee and 22 specialized sub-committees to analyze various aspects of the tax law. The government also sought public input in four key areas: simplifying language, reducing litigation, easing compliance, and eliminating outdated provisions.

The income tax department received 6,500 suggestions from stakeholders as part of this review process.