On February 13, 2025, the Indian Parliament introduced a new Income Tax Bill, as announced by Finance Minister Nirmala Sitharaman during the 2025 Budget speech. The bill proposes replacing the current Income-tax Act, 1961, effective April 1, 2026. A parliamentary committee will be formed to review the bill and provide recommendations. For the bill to become law, it must be passed by both houses of Parliament and receive presidential approval.
The current tax law has been amended numerous times over the years, resulting in a complex and cumbersome structure with excessive explanations and outdated provisions. The new bill aims to create a more straightforward, concise, and easier-to-understand tax code.
Key Highlights of the New Income Tax Bill:
- Simplified Structure: The new bill eliminates redundant provisions, reducing the length of the tax law by nearly half. It is now organized into 23 chapters, 536 sections, and 16 schedules, spanning 622 pages. In comparison, the existing law has 47 chapters and 819 effective sections.
- Clear and Accessible Language: The bill uses clear, straightforward language with tables and formulas to simplify complex provisions. Instead of relying on complicated “provisos” and “explanations,” it uses sub-sections and clauses for exceptions and special cases. Dedicated interpretation sections are included in certain chapters to minimize legal confusion.
- No Policy Changes: The government has issued a set of frequently asked questions (FAQs) to clarify that the bill does not introduce any policy changes. It incorporates the amendments proposed in the 2025 Finance Bill without altering tax rates, income slabs, or available tax regimes. Additionally, a section-by-section comparison of the old and new laws has been published to aid understanding.
- Introduction of the ‘Tax Year’: A significant change is the introduction of the term “Tax Year,” replacing the previously used “previous year” and “assessment year.” While the terminology has been simplified, the tax year will continue to follow the April to March financial year.
- Residential Status Rules Unchanged: The criteria for determining an individual’s residential status remain the same. An individual is classified as a resident, non-resident, or not ordinarily resident based on existing rules. The bill also retains provisions that deem an individual a resident if they meet specific conditions, such as having an income above INR 1.5 million and not being taxable in any other country due to residence or domicile.
- Income Classification: The bill continues to categorize taxable income under five heads: salaries, income from house property, profits and gains from business or profession, capital gains, and income from other sources.
- Tax Filing Deadlines and Penalties: There are no changes to the deadlines for filing tax returns. The rules regarding penalties and prosecution also remain consistent with the existing law.
The new Income Tax Bill represents a significant effort to modernize India’s tax code, making it more transparent and accessible for taxpayers.