News Brief
PM Modi and Nirmala Sitharaman
Union Finance Minister Nirmala Sitharaman is set to introduce the Income Tax Bill, 2025, in Parliament on Thursday (13 February).
The bill seeks to replace the Income Tax Act, 1961, which has become increasingly complex due to multiple amendments over the last six decades.
If enacted, the new law is expected to come into effect from 1 April 2026.
After tabling in the Parliament, the bill will be referred to the Parliamentary Standing Committee on Finance for further deliberations and consultations.
The Income Tax Act, 1961, which has 298 sections and 14 schedules across 880 pages, has expanded significantly over the years due to repeated amendments.
Today, the Act has become too voluminous and complex, increasing compliance burdens and legal disputes.
To simplify the tax framework, the government announced a comprehensive review in the July 2024 Budget, with the aim of making tax laws concise, clear, and easier to understand.
The Central Board of Direct Taxes (CBDT) formed an internal committee, along with 22 specialized sub-committees, to study various aspects of the tax code. Public inputs were invited under four key categories:
Simplification of language
Reduction of litigation
Reduction of compliance burden
The Income Tax Department received 6,500 suggestions from stakeholders during this process.
The new Income Tax Bill, 2025, consists of 536 sections, 23 chapters, and 16 schedules in just 622 pages—a significant reduction from the amended 1961 Act, which had 823 pages as of 2024.
Shorter sentences, clearer language, and more tables (for provisions relating to TDS, presumptive taxation, salaries, and deductions for bad debt) have been introduced to make the law easier to read and comprehend.
The bill is free from "explanations" and "provisos," which were seen as adding unnecessary complexity to the 1961 Act.
The term ‘assessment year’ has been eliminated and replaced by the concept of a ‘tax year’ to simplify compliance. Under the new system, income will be taxed in the year it is earned, avoiding the confusion between "previous year" and "assessment year."
The frequently used word ‘notwithstanding’ in the Income Tax Act, 1961, has been removed and replaced with ‘irrespective’ in almost all instances, making provisions easier to interpret.
The new bill omits obsolete provisions, such as those related to the Fringe Benefit Tax, which are no longer relevant in today’s tax system.
Income not forming part of total income has now been moved to dedicated schedules, simplifying the structure of the tax law.
The new law includes clear tax treatment of ESOPs, incorporating judicial pronouncements from the last 60 years, reducing the scope for disputes between taxpayers and the tax department.