Nirmala Sitharaman
Credit: PTI Photo
Govt lists Income-Tax Bill, 2025 for introduction in LS on Thursday
The government has listed a bill to consolidate and amend the law relating to income-tax for introduction in the Lok Sabha on Thursday.
According to the agenda circulated by the Lok Sabha secretariat on Wednesday, Finance Minister Nirmala Sitharaman will introduce the Income-Tax Bill, 2025.
The much-anticipated Bill will replace terminologies like assessment and previous year with easier to understand 'tax year' as part of move to simplify language while removing provisos and explanations.
New Tax Bill to omit obsolete sections, reduce litigation and improve compliance: Experts
The proposed simplified Income Tax Bill 2025, which is likely to be tabled in Parliament on Thursday, seeks to eliminate obsolete sections of the existing Act, reduce litigation, and improve compliance, experts said.
The primary objective of new Bill is to simplify the tax laws, ensuring they are more transparent, easier to interpret, and taxpayer friendly, they said.
Simplified Income Tax Bill brings in 'tax year' concept; omits 'previous year', obsolete clauses
The much-anticipated new income tax bill will replace terminologies like assessment and previous year with easier to understand 'tax year' as part of move to simplify language while removing provisos and explanations.
The Income Tax Bill, 2025, which is likely to be introduced in Parliament on Thursday, will replace 298 sections and 14 schedules in the six-decade old voluminous legislations, with a 622 page new law enshrined in 526 sections, 23 chapters and 16 schedules.
The Bill introduces a new concept of 'tax year' as the 12-month period beginning from April 1. This would replace the present concept of assessment and previous year.
Income Tax Bill, 2025, to be tabled in Parliament today: Key highlights
* Income Tax Bill, 2025, simplifies language, omits redundant provisions, uses shorter sentences;
* The Bill does not impose any new taxes, only puts together the taxability provisions provided in the Income Tax Act, 1961;
* Comprises 536 sections, 23 chapters and 16 schedules in just 622 pages. This compares with 298 sections, 23 chapters and 14 schedules in the 1961 Act;
* New law to come into effect from April 1, 2026; rules to be put in place once Act is notified;
* Includes both old tax regime and new tax regime for individuals, HUFs and others;
* 'Tax year' concept introduced, complicated terms like 'Previous year' and 'Assessment year' omitted in the new Bill;
* The word 'notwithstanding' removed, replaced with 'irrespective';
* Does not refer to 'explanations or provisos', instead uses tables and formulae;
* Taxpayer's Charter, which outlines the rights and obligations of taxpayers, included in the Bill;
* The Bill provides for special provision for capital gains computation in case of market-linked debenture;
* Income not forming part of total income moved to Schedules to simplify the statute;
* Deductions from salaries such as standard deduction, gratuity, leave encashment etc, tabulated at one place, instead of being scattered over different sections/rules.
Income Tax Bill Reactions | 'New tax bill seems to be simply the language', says Munjal Almoula, Head of Tax, BDO India
Here's what Munjal Almoula, Head of Tax, BDO India has to say--
"New Tax Bill: The objective of the new tax bill is to do away with redundant provisions and to simplify the language of the Tax Law to make the Act more succinct and easier to comprehend. Keeping this objective and the directionality in mind, it is unlikely that the new tax bill will introduce new tax provisions or amend existing tax rates. Hence, I do not expect any additional tax burden to be cast upon taxpayers through the new tax bill.
Expectation from the new income tax bill: The directionality of the new tax bill seems to be simply the language and do away with redundant tax provisions making compliances simpler and less cumbersome for taxpayers.
Accordingly, it would be reasonable to expect a simpler compliance mechanism, greater transparency as regards approach and directionality on tax assessments, and a quicker and more efficient refund mechanism."
Income Tax Bill Reactions | With simplified rules, the compliance process should also be streamlined, says Sandeep Bhalla, Partner, Dhruva Advisors
"The new Income Tax Bill aims to replace the 1961 Act, which is considered controversial having regard to sheer amount of pending litigations. The new simplified direct tax laws aims to reduce ambiguities, and curb litigation. It is expected to be concise, user-friendly, and free of complex provisions," said Sandeep Bhalla, Partner, Dhruva Advisors.
Expectations from the New Income Tax Bill:
Simplification as an ongoing process: The new bill is expected to simplify existing tax laws, making them more concise and accessible for taxpayers. It is however important to mention that tax simplification should not be seen as a one-time effort but as a continuous process that evolves with changes in the economy, technology, and global practices on one hand and the interpretation issues arising thereform periodically.
Proactive stakeholder engagement: The Income Tax Department must actively seek feedback from taxpayers, industry players, and other stakeholders to identify controversial points and address them effectively. Regular dialogue ensures that the reforms remain relevant and practical.
Timely issuance of clarifications: Ambiguities in tax laws often lead to disputes and litigation many a time arising out of aggressive interpretation both from the tax administration and the tax payers. The department should issue prompt clarifications and circulars to address concerns raised by stakeholders, fostering trust and transparency. At the same time a more business-like approach for interpretation should be adopted by the administration.
Technology-driven reforms: The bill should encourage the integration of advanced technologies, such as artificial intelligence and data analytics, for better tax compliance and administration. This can help reduce human intervention, minimize errors, and enhance taxpayer convenience. The use of algorithms by the tax department for data analytics toneeds more to be more robust.
Predictability and stability: A simplified tax code should provide taxpayers with clarity on their liabilities and exemptions. Ensuring minimal frequent changes in provisions will allow businesses to plan their finances more effectively.
Ease of compliance: With simplified rules, the compliance process should also be streamlined. Reducing paperwork, integrating digital platforms, and simplifying return filing mechanisms should be priorities. Here again the number of forms/ returns to be filed by the tax payers need to be reduced significantly. Several tax information could be built into the same form instead of multiplicity of forms to be filed before the tax administration.
Focus on reducing litigation: The government must aim to address contentious areas in the current law to reduce litigation. A clear and concise tax code will provide certainty and reduce disputes.
New Income Tax Bill 2025 expectations| Focus of new IT Bill will be to reduced number of scrutiny in case of gross non-compliance, says Harsh Bhuta, Partner, Bhuta Shah & Co
Here's what Harsh Bhuta, Partner, Bhuta Shah & Co has to say:
"With the commitment of the Government to ‘Trust first, scrutinize later’; the proposal for an introduction of New Income Tax Bill 2025 (new IT Bill) has been a matter of current buzz. Various stakeholders are anticipating numerous changes as compared to erstwhile income-tax law. They are summarized as follows:
Simplified tax residency: It is expected that the new IT Bill 2025 shall address the issue of complexity in determining tax residency of an individual in India. Currently, it involves multiple conditions for qualifying an individual as a tax resident.
Streamline tax provisions: Currently, the income tax law comprises of humongous tax provisions. The new IT Bill is anticipated to address this issue by eliminating certain redundant as well as obsolete provisions and reducing its volume considerably.
Increased transparency: The new IT Bill is contemplated to raise the level of transparency in tax laws by adopting clear and unambiguous language in tax provisions which allows the taxpayers to easily understand their obligations and rights.
No new taxes: The new IT Bill will not entail any new tax but concentrate on facilitating tax compliance in a better way.
No reliance on budget: It is expected that announcements for income-tax reliefs or amendments to the income-tax law will now no longer be required to wait till budget proposals. Government can make the changes to relief by way of executive orders only.
Reduced litigation: The focus of new IT Bill will be on reduced number of scrutiny in case of gross non-compliance to ensure that undue harassment to honest taxpayers is curbed. Also, this will lead to reduction in litigation issues.
Taxpayer-friendly compliance: The new IT Bill is set to reduce the complex compliance burden by simplifying the compliance process making it easier and comprehensible for all taxpayers thereby ensuring savings in cost and time."
Income Tax Bill Reactions | New Income Tax Bill is progressive, says Skill Online Games Institute's president
"The new Income Tax Bill is progressive in that it makes a serious attempt to simplify and remove ambiguity. With sharp definitions of new growth industry’s such as Online Games with its humongous potential (4 times the size of the Movie and Music industry taken together worldwide) it makes a sincere effort to stay abreast with the times. It also recognises the importance of such industries in contributing to India’s economic growth both in terms of GDP growth and jobs and shows that a lot of thought and sensitivity has gone into creating this important Bill," said Amrit Kiran Singh, President, Skill Online Games Institute (SOGI).
Due to the concept of 'Tax Year', will there be a conflict between old and new acts? Tax Connect Advisory Services Partner Vivek Jalan clears the doubts below:
"Due to the concept of 'Tax Year' there might be questions whether the period 01/4/26 to 31/03/27 would be in conflict between old and new acts.
However, this is not to be as It will be Assessment Year 2026-27 of the Income-tax Act, 1961 and will pertain to the income of a taxpayer for the previous year 2025-26 and not to the income of the financial year 2026-27; It will be the tax year 2026-27 of the new Act. It will pertain to the income of a taxpayer for the financial year 2026-27.
The assessment for income of the previous year (financial year) 2025-26 of a taxpayer shall be done as per the provisions of the Income-tax Act, 1961 for the assessment year 2026-27; The assessment for income of tax year (financial year) 2026-27 of a taxpayer shall be done as per the provisions of the Bill for tax year 2026-27," said Vivek Jalan, Partner - Tax Connect Advisory Services LLP.
Income Tax Bill Reactions | After GST reform, new IT Bill is quite appreciable, says Dr Suresh Surana CA
Here's what Dr. Suresh Surana, CA has to say--
"The copy of the New Income Tax Bill 2025 (“ITB”) has been made available to the Members of Parliament (MPs) on 12 February 2025 and has been tabled in the Lok Sabha today.
After the GST reform in 2017 wherein all the indirect taxes were subsumed, the effort made by the government to revamp completely the Income-Tax Act (which was legislated about 64 years ago) is quite appreciable.
The move to streamline the provisions of the Income Tax regulations was much awaited considering that it may not be easy for a layman to comprehend its provisions and there has been a long history of pending litigations at various appellate authorities. This also aligns with the government’s efforts to ease the administrative aspects of doing business and commitment of the tax department to 'trust first, scrutinize later'.
Some of the key takeaways based on perusal of the Income-Tax Bill 2025 made available with the MPs are as under:
1. Overview of the Construct as compared to the earlier Income-Tax Act 1961 (“ITA”):
The ITB is proposed to be effective from 1 April 2026 and would comprise of 536 sections, which are spread over 23 chapters and 16 schedules. The quick overview of the ITA and ITB framework is as under:
Overview of the Construct as compared to the earlier Income-Tax Act 1961 (“ITA”).
Credit: Dr. Suresh Surana, CA
Further, it is observed that as compared to the ITA, there has been a significant effort made to remove the Proviso, Explanations contained in the sections and wherever necessary, tables have been inserted to make it more subtle and legible. For instance, the meaning of “agricultural land” as contained in the ITA was quite complex as it was in a para format. Now under the ITB, an effort has been made to tabulate certain part of the wordings, to make the meaning of “agricultural land” easier to comprehend.
2. “Tax Year” has replaced the concept of “Assessment Year” / “Previous Year”
The term “tax year” has been defined under section 3 of the ITB to mean the twelve months period of the financial year commencing on the 1st April. Further in case of a business / profession newly set up, or a source of income newly coming into existence in any financial year, the tax year shall be the period beginning with (a) the date of setting up of such business or profession; or (b) the date on which such source of income newly comes into existence, and in both cases ending with the said financial year.
In the new ITB, the term “tax year” has replaced the terms such as “Assessment Year” or “Previous Year”, which in many cases were misconstrued by the taxpayers. This was an expected change and would definitely provide more clarity to the domestic and foreign taxpayers to clearly decipher the provisions of the ITB and the specific year to which reference is made.
3. No notable changes in Tax Rates
Based on perusal of the ITB, it is notable that there has been no further change proposed in the ITB with respect to the tax rate structure as applicable to the assessees. The focus of ITB is to streamline the framework of the Income-tax regulations to make it user-friendly and clear.
4. No substantive changes in the Residential Status in case of Individuals, HUFs, Companies, etc.
With respect to the residential status determination, there is no substantive change in the provision as per the New Income-Tax Bill 2025.
a) In the new Bill, the determination of residential status is also contained in Section 6 and has been rephrased without any change in the meaning
b) Sub clauses have been renumbered: For instance, deemed residency u/s 6(1A) of Income-tax Act 1961 is now contained in section 6(7) of the Income Tax Bill 2025
c) Further, there is no substantive change in the determination of residential status in case of other assessees such as Companies, HUFs, etc which are contained in section 6 of the ITB
d) Only change seems to be “previous year” is replaced with “Tax Year”
5. No change in the heads of Income:
Currently under the Income-Tax Act, the income chargeable to tax is classified under 5 different heads of Income. It was expected that there could be certain change in the heads of Income. However, on perusal of the ITB, it is notable that no change has been made with respect to the heads of Income and it has been retained as under:
-- Salaries
-- Income from house property
-- Profits and gains of business or profession
-- Capital Gains
-- Income from Other sources
6. Separate Rules to be Prescribed under the ITB
Currently, the provisions of the ITA are to be read along with the ITR in many cases. For instance, Rule 8D of the ITR provided for computation of expenditure (which is disallowable) in relation to exempt income as provided in section 14A of the ITA. Further, there are certain valuation rules prescribed under Rule 11UA for valuation of assets (including shares of listed, unlisted companies). There are also rules prescribed under the current ITR w.r.t. valuation of perquisites, etc.
As per the ITB, in many cases it has been mentioned that rules would be prescribed under the ITB. Further, section 2(80) defines “prescribed” to mean prescribed by Rules made under this Act. As such, we also need to separately await the rules under the new ITB which would provide more clarity on the operational aspects, such as perquisite valuation, disallowance of expenditure incurred to earn exempt income, valuation rules, etc.
7. Section 10 of the ITA which provides for exemption from tax in certain cases, has now been separately covered in Schedule II to Schedule VII of the ITB
Section 10 of the ITA, which provided for exemption of certain income such as agricultural income, share of profit from partnership firm, family pension, scholarships, certain interest on NRE / FCNR deposits, short stay exemption, etc has now been covered separately in Schedule II to Schedule VII of the ITB in a tabular format. This presentation in the ITB would make it easier for the layman to refer the specific schedule applicable in their case to determine whether any specific income is exempt or not. This has been a welcome change and it aligns with the overall objective to streamline the ITA and make it more comprehensible for the layman.
8. Provisions of the TDS / TCS applicability which was earlier covered in Chapter XVII of the ITA has now been consolidated in a tabular manner in the ITB
Under the ITA, there are several sections such as 194A (Interest), 194I (Rent), 194J (Professional fees, Fees for technical Services, Royalty payment), 194H (Commission), 194C (Contracts), etc. Most of the sections had similar provisions except for the applicable tax rates, thresholds, etc.
Under the ITB, the issue of overlapping and almost similar provisions of TDS was addressed by covering the TDS provisions (except salaries) under section 393 of the ITB in a concise and tabular manner. Further the provisions of TDS on Salary contained in section 192 of the ITA has been covered in section 392 of the ITB. Similarly, the provisions of TCS contained in section 206C of the ITA has been covered in a tabular manner in section 394 of the ITB for ease of reference. This is a welcome move and would make the TDS / TCS provisions easier to understand and would help in better compliance, avoid tax leakages and ensure administrative ease.
9. Provisions of withholding tax on payments to non-residents such as Royalties, FTS, Dividends, Interest would be governed by section 207 of ITD and no changes proposed in the applicable tax rates
Currently, section 115A of the ITA provides for the applicable tax rates on certain payments to non-residents such as towards Royalties, Fees for Technical Services, Dividends, Interests etc and the rates applicable is 20% under the ITA (subject to the benefit available under the DTAA). On perusal of the ITB, it is notable that similar provisions have been covered in section 207 of the ITB wherein the tax rates are tabulated for ease of reference and further that no substantive change is proposed in the rate structure.
Income Tax Bill Reactions | IT Bill 2025 offers greater clarity through explanations, says BDO India's Head of Tax & Regulatory Services
“As was expected, the New Income Tax Bill doesn’t seek to introduce any additional tax burden on taxpayers. What the bill attempts to do is simplify the language contained in the Income-tax Act of 1961, provide greater clarity through explanations and provides more transparency to taxpayers. Another important aspect introduced through the new tax bill is providing guidance on the taxability of income streams emanating through new age business such as digital assets etc,” said Munjal Almoula, Head of Tax & Regulatory Services, BDO India.