The Indian government is set to introduce the new Income Tax Bill, 2025, which aims to replace the existing Income Tax Act, 1961.
The proposed bill, which is expected to be tabled in Parliament on February 13, is designed to simplify tax regulations and make compliance easier for individuals and businesses. It will include 536 sections and 23 chapters, spanning 622 pages, significantly reducing the bulkiness of the current law.
One of the major changes in the new bill is the removal of the concept of the "assessment year." Instead, the term "tax year" will be used, eliminating the existing system where tax for a particular financial year is assessed in the following year.
This shift aims to streamline tax administration and make compliance more straightforward for taxpayers.
The number of sections in the new bill has increased compared to the current Income Tax Act, which has 298 sections. However, the updated structure is expected to provide a clearer and more organised framework for taxation.
Additionally, the number of schedules has been increased from 14 to 16, while the number of chapters remains the same at 23. Despite the increase in sections, the total length of the bill has been significantly reduced, making it more concise and easier to understand.
Experts believe that the changes reflect a modern approach to tax administration. The bill incorporates judicial pronouncements from the past 60 years, providing greater clarity on various tax matters. It also introduces clearer tax treatment for stock options (ESOPs), which is expected to reduce tax disputes.
Another significant change in the proposed bill is the increased authority granted to the Central Board of Direct Taxes (CBDT).
Under the new framework, the CBDT will have the power to introduce compliance measures, tax administration rules, and digital tax monitoring systems without requiring frequent legislative amendments.
This is expected to reduce bureaucratic delays and make tax governance more efficient.
The bill is likely to be referred to a parliamentary standing committee for detailed scrutiny before being enacted.
The Finance Minister had first announced the need for a comprehensive review of the Income Tax Act in July 2024, and since then, efforts have been made to draft a more effective and streamlined tax law.
As part of this process, the CBDT established an internal committee to oversee the review and ensure that the new law is clear, concise, and easy to understand. Additionally, 22 specialised sub-committees were formed to examine various aspects of taxation.
Public feedback was also sought in four key areas: simplifying language, reducing litigation, minimising compliance burdens, and removing obsolete provisions.
The Income Tax Department received around 6,500 suggestions from stakeholders during this review process. These inputs have been considered in the drafting of the new bill, which is expected to provide greater tax certainty and reduce legal disputes.
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