The Hon’ble. finance minister Smt. Nirmala Sitharaman finally presented the New Income Tax Bill, 2025 in the parliament on 13th February, 2025. After its initial announcement in the Budget 2025, everyone eagerly awaited the new bill to replace the long-standing Income Tax Bill, 1961. With this replacement, taxpayers expected significant transformations overcoming the complications and redundancies of the previous bill.
Let us understand if the government has delivered to the taxpayers’ expectations. We shall also understand the steps taken towards structured tax administration and digital mechanism with this New Income Tax Bill.
Proposed Effective Date of the New Income Tax Bill- 1st April 2026
It is important to note that the new bill has only been proposed in front of the parliament for now. It is hence not a law and not immediately effective. Instead, only when both the houses of the parliament and the President approves it, it will be applicable. The next step at present is the review by the Select Committee in the monsoon session of Parliament. While the date for this session is not definitive, it will likely happen in July 2025.
The proposed effective date of the New Income Tax Bill is 1st April 2026. Read the new income tax bill, 2026.
Implementation of Budget 2025 Amendments
The New Income Tax Bill includes all the amendments as announced in the Budget 2025. It represents an updated set of documents with all amended, applicable, and relevant income-tax provisions. It hence covers the new tax regime, revised TDS rates, and other changes as per Budget 2025.
Sole Focus of the Bill- Simplification of Tax Framework
To the surprise of many financial experts, the New Income Tax Bill, 2025 hasn’t offered much with respect to changes in tax rates, tax residency, or any other substantive tax provisions. In fact, the sole focus seems to be the simplification of tax framework, wherever possible. This is evident by the reduced length of the income tax bill, adaptation of tabular format, wherever possible, and introduction of the concept of tax year.
Besides such changes aimed at better interpretation, the existing previsions were kept consistent. A few examples of how simplification for taxpayers was implemented:
1. Reduction in Length by 50%
The most significant highlight of the New Income Tax Bill is its reduced length with 23 chapters, 16 schedules, 536 sections, and around 2.6 lakh words. Comparing it to the existing bill with 47 chapters, 819 sections, and nearly 5.12 lakh words is testament of simplified framework that the government aimed with this bill.
2. Elimination of Redundant Sections for Better Clarity
Eliminating sections, more than 1200 provisions, and 900 explanations, the government has replaced the existing redundant content with simplified content like sub-sections or clauses. An example of the same is elimination of section 10A, 71A, 80CCA, 80CCF, and 47, which are a part of the existing act even when omitted or ineffective.
3. Replacing Lengthy Text with Tables and Formulas
Replacing the existing lengthy texts for sections, subsections, and clauses, the New Income Tax Bill uses tabular formats wherever possible. Compared to the 18 tables in the existing Income Tax Bill, 1961, this new bill carries 57 tables. This not only eliminates excessive wording but also compresses multiple sections into one common theme wherever possible.
Moreover, multiple mathematical provisions in the existing act existed in language form. This includes provisions of advance tax, WDV determination, and more. In the New Income Tax Bill, formulas are available for advanced tax calculations now.
4. Addition of “Interpretation” Section
There is now an “interpretation” section after 12 (sub)chapters that includes all relevant definitions from the chapter. This is in addition to the existing definitions with explanations at the end of subsections or clauses.
5. Sections Categorized into Single Section
At multiple places in the new bill, wherever possible, multiple sections are combined and put under a single section to make its application and understandability easier. A fine example of the same is how all the TDS rates applicable on payments to nonresidents are now under one single section. In the existing income tax bill, the applicability of such rates is at one place, but the rates for the same are not there.
6. Concept of Tax Year
At present, there is a dual concept of assessment year and previous year, where previous year represents the period when tax is earned, and assessment year is when income is charged for tax and returns are filed for that tax. Assessment year begins right after the end of the previous year. This concept was complex and made taxation difficult for common taxpayers.
With the introduction of “tax year” the government has removed this complexity. This tax year will commonly be the financial year- 1st April to 31st March. To keep the existing act in force, the assessment year in the new tax bill is now “succeeding tax year”.
This is precisely how this new bill has eased the interpretation and accessibility of tax information for people.
Clarifications and Replacement of Terms
The Income Tax Bill, 2025 also proposed clarifications and replacement of terms to aid better interpretation for taxpayers:
- Term “notwithstanding” replaced with the term “irrespective” at certain places like corresponding clause 37 dealing with deductions on payment basis.
- Introduction of a sequential manner to interpret certain undefined terms in the tax treaty.
- Clarification provided for reliance- one can place it under any Central Act (tax or non-tax).
- The government also clarified that one can not issue a reassessment notice for 1 year after the end of relevant tax year. This aligns with the government’s aim to avoid duplication of income tax legal proceedings and allow more time to adhere to the compliance procedures.
More Power to Central Board of Direct Taxes (CBDT)
The current income tax bill already requires CBDT to frame tax rules. However, to announce various procedural matters, compliance frameworks, or tax reforms, approval from Parliament was necessary. In the new income tax bill, the government addressed this to provide more power to CBDT that can act independently without the need for approval, reducing bureaucratic delays.
New Income Tax Bill- The Window to Better Tax Administration
The New Income Tax Bill does not offer any changes to the provisions, tax rates, schemes, or policies. Yet, financial stakeholders see it as a significant step towards simplifying the tax administration, especially for common taxpayers. India is certainly moving towards a more modern approach for its financial ecosystem with introduction of global practices like “tax year” in place of assessment and previous year and more.
