Income Tax Bill 2025 to introduce ‘Tax Year,’ simplify language and replace archaic terms | In Detail
PTC Web Desk: The Income Tax Bill 2025, which aims to simplify the complex language of the existing Income Tax Act, 1961, and introduce the concept of ‘tax year,’ is set to be introduced in Parliament on Thursday. The Bill seeks to do away with the outdated terms ‘previous year’ and ‘assessment year,’ making tax compliance easier for taxpayers.
The new Bill comprises 536 sections, organised into 23 chapters and 16 schedules, within 622 pages. Unlike the existing Income Tax Act, which has 298 sections and 14 schedules spread across 880 pages, the new Bill does not introduce any new taxes but focuses on simplifying the language and structure of the old law.
Why a new Income Tax Bill?
The current Income Tax Act, which was introduced in 1961, has undergone numerous amendments over the past six decades, making it lengthy and complex. This has increased the compliance burden on taxpayers and complicated the work of tax administrators. To address these issues, Finance Minister Nirmala Sitharaman announced a comprehensive review of the Income Tax Act in the July 2024 Budget.
The proposed Income Tax Bill 2025 is designed to be concise, clear, and easy to understand. It aims to reduce disputes, minimise litigation, and provide greater certainty to taxpayers. The new law is expected to come into effect from April 1, 2026.
Key changes and features
Introduction of ‘Tax Year’:
The new Bill introduces the term ‘tax year’ and abolishes the concept of ‘previous year’ and ‘assessment year.’ Currently, taxpayers pay tax in the assessment year for income earned in the previous year. For example, income earned in 2023-24 is taxed in 2024-25. Under the new Bill, only ‘tax year’ will be used, simplifying the timeline for taxpayers.
Simplified language and structure:
The Bill uses shorter sentences and avoids complex legal jargon, making it more reader-friendly. It eliminates the use of ‘notwithstanding,’ which was extensively used in the old act, and replaces it with ‘irrespective’ for easier comprehension. The Bill also removes redundant sections like those related to Fringe Benefit Tax.
Use of tables and formulae:
The new law uses tables and formulae to explain provisions related to TDS, presumptive taxation, salaries, and bad debt deductions. This approach is expected to make the Bill more accessible and reduce confusion among taxpayers.
Taxpayer’s charter:
A ‘Taxpayer’s Charter’ is included, outlining the rights and obligations of taxpayers, promoting transparency and fairness in the tax system.
Changes in TDS provisions:
All TDS-related sections have been grouped under a single clause with simple tables for easier understanding and compliance. This consolidation will require updates in forms and utilities for reporting purposes after the Bill is notified.
Focus on Reducing Complexity and Disputes
The Income Tax Bill 2025 incorporates judicial pronouncements from the last 60 years to provide clarity and reduce legal disputes. It also moves provisions related to ‘income not forming part of total income’ to schedules, simplifying the main text of the law.
The Bill also brings clarity to the tax treatment of Employee Stock Options (ESOPs), aiming to reduce disputes in this area.
Public consultation and review process
To make the Income Tax Act more concise and user-friendly, the Central Board of Direct Taxes (CBDT) set up an internal committee and 22 specialised sub-committees to review different aspects of the law. Public inputs were invited under four categories:
Simplification of Language
Litigation Reduction
Compliance Reduction
Removal of Redundant/Obsolete Provisions
The Income Tax Department received 6,500 suggestions from stakeholders, including taxpayers, tax practitioners, and industry experts. These inputs were considered in drafting the new Bill.
Reduction in pages and improved structure
The new Bill is more concise, with 622 pages compared to the current act, which includes 880 pages due to multiple amendments over the years. Although the number of sections has increased from 298 to 536, the chapters are retained at 23, and schedules have been increased from 14 to 16. The use of tables, shorter sentences, and the removal of complex legal terms aim to make the bill easier to read and understand.
The Income Tax Bill 2025 is likely to be introduced in the Lok Sabha on Thursday. Once introduced, it will be sent to the Parliamentary Standing Committee on Finance for further discussions and deliberations. If approved, the Bill will replace the six-decade-old Income Tax Act, 1961, which has become too voluminous and complicated due to constant amendments.
- With inputs from agencies
