Finance Minister Nirmala Sitharaman presented the new Income Tax Bill in the Lok Sabha on Thursday, aiming to simplify and comprehensively revamp the current Income Tax Act of 1961.
The existing act has been criticised for its complexity and difficulty for ordinary taxpayers to navigate. The proposed new bill is projected to have 23 chapters, 16 schedules, and approximately 536 clauses, a significant reduction compared to the previous act, which consisted of 823 pages, 23 chapters, 14 schedules, and 298 sections.
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The bill will be referred to the Parliamentary Standing Committee on Finance, which will begin its consultation process.
While introducing the bill, FM Sitharaman said: “We are bringing down the income tax sections to 536. Substantial changes are being made in the income tax bill, chapters are being reduced.”
Congress MP Manish Tiwari criticized the recently proposed Income Tax Bill, stating that it is more intricate than the current law.
FM Sitharaman, in turn, defended the bill by highlighting that the modifications are substantial and not merely superficial and that the total number of words has been notably decreased.
BJP Member Tejasvi Surya lauded the recently introduced Income Tax Bill for its potential to completely overhaul India’s direct taxation system, ultimately providing a more user-friendly, simplified, and easily compliant framework.
Changes expected
Among many changes, the Bill may introduce the concept of the ‘tax year’ in Clause 3 to replace the confusion between the ‘assessment year’ and ‘previous year’, ‘financial year’ aiming to streamline taxpayers’ understanding.
Efforts have been made to simplify TDS compliance by consolidating all TDS-related sections into a single clause with easy-to-read tables. Deductions from salaries, including standard deduction, gratuity, and leave encashment, are now conveniently tabulated in one place within the new bill, eliminating the need to navigate through multiple sections and rules.
The new Bill is devoid of unnecessary explanations or clauses, making it more accessible and understandable. Additionally, the overuse of the word ‘notwithstanding’ in the Income Tax Act of 1961 has been eliminated in the new Bill and replaced with ‘irrespective’ in most instances. The Bill features concise sentences and incorporates tables and formulas to enhance readability for readers.
If the bill is approved, the updated tax system is set to be implemented starting from the fiscal year 2025-26, impacting taxpayers beginning in the assessment year 2026-27.
The new Income Tax Bill has also proposed virtual digital assets as part of the assessee’s capital assets, and includes various provisions such as tax deducted at source (TDS), presumptive taxation rates, and assessment time limits presented in a tabular format.
The income tax bill will soon be available for viewing on the official Lok Sabha website. To access this bill, as well as others discussed in the Lok Sabha, please visit sansad.in/ls/legislation/bills.Â
Here are the key highlights (based on the draft Bill)
The upcoming Income Tax Bill is set to be 201 pages shorter than the current Income Tax Act, resulting in a more concise and easily comprehensible document for taxpayers. In contrast to the bulky 823-page Income Tax Act of 1961 as of 2024, the streamlined new bill will consist of 622 pages, offering a more user-friendly guide for individuals navigating tax laws.
To alleviate confusion, the assessment year will now be referred to as the tax year. Additionally, for newly established businesses, the tax year will commence from the date of their establishment, simplifying financial reporting processes.
The new bill also addresses longstanding controversies surrounding Sections 44AD, 44AE, and 44ADA, which have been a point of contention among professionals. To enhance clarity in profit calculation, the bill introduces the concept of “profit claimed to have been actually earned,” providing a more precise framework for determining taxable income.
The proposed Bill includes updates to the structure, extends deadlines, and provides incentives for digital transactions, all while maintaining familiar tax regulations. It also includes provisions to offer tax audit relief for businesses with a turnover of up to ₹10 crore that predominantly use digital payments. This change could have easily been integrated into the current Act.
The upcoming bill will keep the current deadlines for filing returns intact and will not modify the income tax slabs or capital gains taxes. This will offer taxpayers stability and assurance.
Additionally, the bill does not suggest any adjustments in the categorisation of income across different sources.
However, it aims to eliminate more than 300 outdated provisions that are no longer relevant.
The new legislation is scheduled to be implemented on April 1, 2026. As a result, taxpayers will need to adhere to the existing Income Tax Act for the financial year 2025-26 and filings until March 2026.
Budget session
The Lok Sabha has been adjourned until March 10, 2025. The Parliament is scheduled to reconvene for the second phase of the Budget Session from March 10 to April 4, 2025.