Manas Dasgupta
NEW DELHI, Feb 13: The Union Finance Minister Nirmala Sitharaman on Thursday introduced in Parliament the new Income Tax Bill, 2025, which is expected to cut through the financial jargon in the existing act and simplify the language of the law, introducing tables and formulas to replace the complicated legal language.
Experts said connected provisions have been brought together at one place in the new bill and one can determine tax liability based on his nature of business. Once passed, the Income Tax Bill, 2025, will replace the existing Income Tax Act, 1961.
As Ms Sitharaman rose to present the bill, some members of the opposition staged a walk-out and others lobbed fierce questions at her. Among the latter, the Congress’ Manish Tewari and the RSP’s NK Premchandran suggested the new tax bill is, in fact, more complicated than the old. Trinamool MP Saugata Roy then criticised the new bill as being “mechanical.”
Ms Sitharaman said the MPs were incorrect; she said the present law had over 800 sections whereas the proposed law had only 536. In a post on X, the Finance Ministry said the new tax system was built on five core principles, which make it ‘S.I.M.P.L.E’ for people to follow and to enforce. These five principles were explained as: “Streamlined structure and language, Integrated and concise, Minimised litigation, Practical and transparent, Learn and adapt, and Efficient tax reforms.”
She also said “substantial changes” had been made to the old law. “Number of words have come down by half… sections and chapters have been cut,” she said. The new bill was then put to a voice vote. Opposition members who remained opposed its introduction – even at this stage – but the new income tax proposals was, as expected, passed.
Ms Sitharaman then referred the bill to a joint parliamentary committee – which will examine the new tax proposals and make changes, if needed – before it is re-tabled in the House for adoption. The JPC is expected to submit its report on March 10, the first day of the second half of the Budget Session. This committee will be set up by Lok Sabha Speaker Om Birla.
After tabling the bill, Ms Sitharaman’s office tweeted, “The new Income Tax Bill has been tabled. The bill aims to simplify the language of the existing law as amended to date. (A copy of) the bill is available at our website… Our FAQs address common queries regarding objectives and the outcome…”
The new law will take effect from April 1, 2026. It will not, however, change existing tax slabs.
Among the proposed changes and amendments is the concept of a ‘tax year’, which will replace the simultaneous use of ‘financial year’, or FY, and ‘accounting year’, or AY. In other words, under current income tax laws, tax for income earned in 2023/24, for example, is paid in 2024/25. The proposed change will see the introduction of a ‘tax year’, so tax on income earned in a year will be paid that year. It has also omitted redundant sections, like those about ‘fringe benefit tax’.
Tables have been included for provisions relating to TDS, (tax deducted at source), ‘presumptive taxation’, salaries, and deductions for bad debt.
Overall, it tries to replace the 1961 Act, which critics said had become voluminous due to amendments made over the past 60 years. Speaking this afternoon, Ms Sitharaman said, “The Income Tax Act was originally enacted in 1961 and came into effect in 1962.” “At that time they had 298 sections. But, as time went by, more sections were added. And, as it stands today, there are 819… from that, we’re bringing it down to five,” she explained.
The biggest point in the New Income Tax Bill is that existing tax slabs do not change. The Finance Ministry also said “key words” and “phrases defined in court rulings (will) remain.” “Certainty of tax law provisions for all” remains, Ms Sitharaman’s office said on X.
The Income Tax Bill 2025 is proposed to be effective from April 1, 2026, and would comprise of 536 sections, which are spread over 23 chapters and 16 schedules. Giving details of the differences between the 1961 Act and the new bill, the experts said 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 clear and legible. For instance, the meaning of “agricultural land” as contained in the existing Act was quite complex as it was in a para format. Now under the new income tax bill, an effort has been made to tabulate certain part of the wordings, to make the meaning of “agricultural land” easier to comprehend.
The term ‘tax year’ has been defined under Section 3 of the Income Tax Bill 2025 to mean the 12 months period of the financial year commencing on the April 1. 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 Income Tax Bill 2025, the term ‘tax year’ has replaced the terms such as ‘Assessment Year’ or ‘Previous Year’ under the Income Tax Act, 1961, which in many cases were misconstrued by the taxpayers. It is notable that there has been no change proposed in the Income Tax Bill 2025 with respect to the tax rate structure. The focus of the Income Tax Bill 2025 is to streamline the framework of the Income Tax regulations to make it user-friendly and clear.
With respect to the residential status determination, there is no substantive change in the provision as per the New Income Tax Bill 2025. 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.
Currently under the Income Tax Act, the income chargeable to tax is classified under five different heads of Income. It was expected that there could be certain change in the heads of Income. However, on perusal of the Income Tax Bill, 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
Currently, the provisions of the Income Tax Act, 1961, 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 with respect to valuation of perquisites, etc.
As per the Income Tax Bill 2025, in many cases, it has been mentioned that rules would be prescribed under the Income Tax Bill 2025. 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 Income Tax Bill 2025 which would provide more clarity on the operational aspects, such as perquisite valuation, disallowance of expenditure incurred to earn exempt income, valuation rules, etc.
Section 10 of the Income Tax Act, 1961, 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 Income Tax Bill 2025 in a tabular format. This presentation in the Bill 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.