Income Tax Bill 2025: Simplified version brings in 'tax year' concept; omits 'previous year' and obsolete clauses

The Income Tax Bill, 2025, will replace 298 sections and 14 schedules in the six-decade old voluminous legislations, with a 622 page new law enshrined in 526 section.

New Delhi: 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.

Currently, income earned in the previous year (PY), say in the year April 2024 to March 2025, will be assessed in assessment year (AY) 2025-26.

The new Bill will come into effect from April 1, 2026, after it is vetted by Standing Committee and cleared by Parliament.

The new bill has omitted redundant sections, like those relating to Fringe Benefit Tax. The Bill is free from 'explanations or provisos', thereby making it easier to read and comprehend.

Also, the word 'notwithstanding', which was used excessively in the Income Tax Act, 1961, has been done away with in the new Bill and almost everywhere replaced with the term 'irrespective'.

The Bill uses shorter sentences and has been made reader-friendly with the use of tables and formulae. Tables have been provided for provisions relating to TDS, presumptive taxation, salaries, and deductions for bad debt .

The 'Taxpayer's Charter' has been included in the Bill which outlines the rights and obligations of the taxpayers.

The Bill replaces the term 'previous year' as mentioned in the Income Tax Act, 1961 with 'tax year'. Also, the concept of assessment year has been done away with.

Currently, for income earned in the previous year (say 2023-24), tax is paid in assessment year (say 2024-25). This previous year and assessment year (AY) concept has been removed and only tax year under the simplified bill has been brought in.

Once introduced in the Lok Sabha likely on Thursday, the Bill will be sent to the Parliamentary Standing Committee on Finance for further deliberations.

The Statement of Objects and Reasons of the new I-T Bill said that the Income-tax Act passed in 1961 has been subjected to numerous amendments since its passage 60 years ago.

"As a result of these amendments the basic structure of the Income-tax Act has been overburdened and language has become complex, increasing cost of compliance for taxpayers and hampering efficiency of direct-tax administration," it said.

Tax administrators, practitioners and taxpayers had also raised concerns about the complicated provisions and structure of the Income-tax Act.

Therefore, the government in the budget in July 2024 announced that a time-bound comprehensive review of the Income-tax Act, 1961 would be undertaken to make the Act concise, lucid, easy to read and understand.

Accordingly, the Income-tax Bill, 2025 has been prepared, which proposes to repeal and replace the Income-tax Act, 1961.

The Income Tax Bill, 2025 comprises 536 sections, higher than 298 sections of the current Income-Tax Act, 1961. The existing law has 14 schedules which will increase to 16 in the new legislation.

However, the number of chapters have been retained at 23. The number of pages has been reduced substantially to 622, almost half of the current voluminous Act which includes amendments made over the last six decades.

When the Income Tax Act, 1961, was brought in, it had 880 pages.

As per the proposed law, clearer tax treatment on employees' stock options (ESOPs) have been included for reduced tax disputes and it includes judicial pronouncements of the last 60 years for more clarity.

Also, income not forming part of total income have now been moved to schedules to simplify the statute.

Commenting on the Bill, Nangia Andersen LLP M&A Tax Partner Sandeep Jhunjhunwala said in the new bill all TDS related sections have been brought together under a single clause with simple tables, for ease of understanding.

"This would mean post notification of this bill later, a lot of changes would be required in forms and utilities, for reporting purposes," he said.

Finance Minister Nirmala Sitharaman had announced in Budget 2025-26 that the new tax bill will be introduced during the ongoing session of Parliament.

Sitharaman had first announced a comprehensive review of the Income-tax Act, 1961 in July 2024 Budget.

The CBDT had set up an internal committee to oversee the review and make the Act concise, clear, and easy to understand, which will reduce disputes, litigations, and provide greater tax certainty to taxpayers. Also, 22 specialised sub-committees have been established to review the various aspects of the Income Tax Act.

Public inputs and suggestions were invited in four categories: simplification of language, litigation reduction, compliance reduction, and redundant/obsolete provisions.

The income tax department has received 6,500 suggestions from stakeholders on review of the Income Tax Act.