Income Tax Bill 2025 to be Introduced in Parliament, Aims to Simplify Tax Laws.
New Delhi: The eagerly awaited Tax Act, 2025, which aims at the drastic reform of existing tax code by replacing the obsolete terms ‘previous year’ and ‘assessment year’ with a universal ‘tax year’ is expected to be presented in Parliament today. This Bill, which seeks to improve the transparency and brevity of tax legislation, will supersede the Income Tax Act of 1961, an act that has been amended many times since its enactment sixty years ago.
The proposed legislation contains 536 sections, 23 chapters, and 16 schedules, all within 622 pages, making it a more structured and user-friendly document compared to the existing Income Tax Act, 1961, which had 880 pages when first introduced. Crucially, the Bill does not, however, contain any new tax but purely rephrased the terms and form of tax laws.
Key Changes in the New Tax Bill
One of the most significant changes is the removal of redundant provisions, such as those related to Fringe Benefit Tax. Further, the Bill does not follow this common employment of legalistic language, in particular the word ‘notwithstanding’ of which a new simpler word, ‘irrespective’ has been substitutes for clarity.
In addition, in order to facilitate tax compliance, the new Bill also introduces shorter sentences, tables, and formulae for the critical chapters, including Tax Deducted at Source (TDS), presumptive taxation, salary rules, and bad debt deduction.
Another important reform is the “Taxpayer’s Charter” introduction, which lists the taxpayer’s rights and liabilities. This supplement is anticipated to enhance transparency and enhance taxpayer security.
New ‘Tax Year’ Concept Replaces Assessment Year
The most radical shift from the existing system is the complete withdrawal of the corresponding year and assessment year (AY) idea. According to the current legislation, the earnings made in a financial year (e.g., 2023-24 is taxed in the following assessment year (2024-25). The new Bill abolishes this system and introduces a “tax year” in a single one replacing it, thereby making the tax filing and assessment easier.
Parliamentary Review and Legislative Process
After being introduced in the Lok Sabha, the Income Tax Bill 2025 will be referred to the Parliamentary Standing Committee on Finance for further deliberation and amendments prior to enactment. Under the new tax legislation, commencement is anticipated to be from April 1, 2026.
As per the Statement of Objects and Reasons of the Bill, the present Income Tax Act, 1961 has grown to be too complex due to various amendments being made it over the years. This complexity has driven up the compliance costs for taxpayers and made tax administration inefficient.
Government’s Efforts to Reform Tax Laws
Recognizing these challenges, the government announced in the July 2024 Budget that a comprehensive review of the Income Tax Act would be undertaken. This resulted in the establishment of a Central Board of Direct Taxes (CBDT) internal committee, as well as 22 specialized sub-committees, to review and optimize tax legislation.
The review process also sought public input under four main themes:.
- Simplification of language
- Reduction of litigation
- Easing compliance burdens
- Eliminating obsolete provisions
As a result, the government received 6,500 suggestions from various stakeholders, including tax experts, businesses, and individual taxpayers.
Enhanced Clarity on ESOPs and Income Exemptions
In the Income Tax Bill 2025, there has been a provision of sincerity in the framework for the tax treatment of Employees’ Stock Options (ESOPs) so as to resolve tax litigation issues. Specifically, income items that do not constitute total income have been transferred into separate schedules, thus the law is now more uniform.
Expert Opinions on the New Tax Bill
Tax specialists agree that the process of tax law simplification will be a win for everyone—taxpayers and administrators. Sandeep Jhunjhunwala, M&A Tax Partner at Nangia Andersen LLP, has pointed out that the TDS-related provisions have been merged into one paragraph and also the tables are simplified for easy usage.
On the other hand, he pointed out that immediately after the Bill is passed, there will be a need for a lot of changes in the tax forms and reporting tools, to ensure a smooth compliant with the new law.
Government’s Commitment to Tax Simplification
Finance Minister Nirmala Sitharaman in her Budget 2025-26 presentation, reiterated the commitment of the government to modernizing the legacy tax system of India. [She] announced a review of the Income Tax Act, 1961 in the context of the _July 2024 Budget_and, given its importance, acknowledged the need for simplifying and consolidating tax legislation.
The coming tax reform is anticipated to diminish litigation, promote tax certainty and simplify compliance for businesses and consumers alike . With the Income Tax Bill 2025 to be cleared by parliament, stakeholders hope for further dialogue that will trend the direction of India’s taxation framework.
Conclusion
The enactment of the Income Tax Bill 2025 is a crucial step towards tax reform in India. With a definition of the subject vocabulary, optimization of tax provisions, that is, the bureaucracy that handles tax payment and administration and hence accessibility to information, and simplifying the legal framework so that it is simpler to grasp, the Bill is aimed at lessening the compliance burden and it is expected that tax administration generally will become more efficient.
The proposed tax reform, if it gets approved, will be applicable in India from April 1, 2026 when a transparent and taxpayer-centric system will be in effect for individuals as well as businesses in India.
Disclaimer:
This article is for informational purposes only and does not constitute financial, legal, or tax advice. Readers should consult a professional before making any tax-related decisions. While we strive for accuracy, YPBB News is not responsible for any errors or omissions in the information provided.
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