New Income Tax Bill Tabled in Lok Sabha: Key Changes and Impact on Taxpayers
New Income Tax Bill Tabled in Lok Sabha: Key Highlights and Impact on Taxpayers
In a significant step towards tax reform, Finance Minister Nirmala Sitharaman introduced the new Income Tax Bill in the Lok Sabha on Thursday, following the Union Cabinet’s approval. The proposed legislation aims to modernize and simplify India’s tax system by replacing the Income Tax Act, 1961 with a more streamlined and taxpayer-friendly framework.
New Income Tax Bill Moves to Select Committee
During the Bill’s introduction, Sitharaman requested Lok Sabha Speaker Om Birla to refer the draft law to a select committee of the House. This committee will review the Bill and submit its report by the first day of the next parliamentary session. Despite initial opposition from some members, the House passed the motion by voice vote for its introduction.
Key Objectives of the New Income Tax Bill
The government has confirmed that the new Bill does not introduce any new taxes but instead focuses on:
Simplifying tax laws and reducing legal complexities
Improving clarity in provisions by removing ambiguous or outdated clauses
Minimizing litigation by making tax compliance easier
Enhancing transparency in tax administration through digital monitoring systems
The new law is expected to be 50% shorter than the current Income Tax Act, 1961, making it more accessible to taxpayers without requiring expert consultation.
What’s Changing? Key Features of the New Income Tax Bill
The Bill introduces several significant changes aimed at improving taxpayer compliance and making tax laws easier to understand. Here are ten key takeaways that could impact taxpayers:
Introduction of a Unified “Tax Year” Concept:
The Bill proposes a simplified tax year system, eliminating confusion between assessment year (AY) and financial year (FY).
This change will help taxpayers understand filing deadlines more clearly.
Financial Year Remains Unchanged:
Despite structural changes, the financial year (April 1 – March 31) remains intact.
The government has not adopted the calendar year (January-December) for taxation purposes.
Revised and Renumbered Sections for Clarity:
Sections in the Income Tax Act, 1961 will be restructured and renumbered for better readability.
Example: Section 139 (which deals with filing income tax returns) will be streamlined under the new system.
No Changes to Residency Laws:
The classification of tax residency status (Ordinarily Resident, Non-Ordinarily Resident, Non-Resident) remains unchanged despite recommendations for revision.
A More Comprehensive Yet Simplified Bill:
The new Bill consists of 23 chapters, 536 sections, and 16 schedules, making it more structured and effective.
It includes modern compliance mechanisms for better tax administration.
Easier-to-Understand Tax Provisions:
The language of the new Bill has been simplified, replacing complex explanations and legal jargon with clear, concise provisions.
Deductions, such as standard deduction and gratuity, are now grouped under one section for better clarity.
Simplified TDS (Tax Deducted at Source) Compliance:
TDS provisions have been consolidated under one clause, making compliance easier.
This may require changes to forms and tax filing utilities.
No Changes to Tax Deadlines and Slabs:
Existing income tax slabs and filing deadlines remain unchanged, ensuring stability for taxpayers.
There are no modifications to capital gains tax rates.
Streamlining of Income Classification:
Income categories remain the same, but over 300 outdated provisions are expected to be removed for better clarity.
Implementation Timeline:
The new Income Tax Bill is expected to take effect from April 1, 2026.
Taxpayers will continue following the current Income Tax Act for FY 2025-26 and assessment year 2026-27.
What Experts Say About the New Tax Bill
Tax experts view this Bill as a landmark reform. Himanshu Parekh, Partner, Tax, KPMG, highlighted that the new Bill represents a significant overhaul of India’s tax system.
The Bill spans 622 pages, reducing legal complexities.
“It replaces intricate legal jargon with straightforward language,” said Parekh.
The Bill also promotes a “trust-first, scrutinize-later” approach, aligning with the government’s principle of “minimum government, maximum governance”.
Impact on Taxpayers: A More Transparent Tax System
The new Income Tax Bill aims to reduce disputes and litigation by offering greater certainty for taxpayers. It also gives the Central Board of Direct Taxes (CBDT) greater authority to set tax administration rules and implement digital monitoring systems.
By modernizing the tax framework, the Bill is expected to make filing returns and tax compliance easier for individuals and businesses.
Conclusion: A Major Step Towards Tax Reform
The Income Tax Bill, 2025, once passed, will replace the outdated Income Tax Act, 1961, bringing a simpler, more transparent, and efficient tax system for all taxpayers. The Bill is designed to reduce legal hurdles, promote ease of compliance, and provide more certainty.
As the Bill moves to a select committee for review, taxpayers and businesses will be keenly watching for any further amendments before it comes into effect in April 2026.
