New I-T Bill: Union Finance Minister Nirmala Sitharaman is set to present the new Income Tax Bill in the Lok Sabha this week, which will replace the long-standing Income Tax Act of 1961. The Bill, approved by the Union Cabinet on February 7, 2025, will be referred to the Standing Committee on Finance once introduced in Parliament.
The main goal of the new bill is to streamline the existing Income Tax laws, making them more transparent and concise to reduce conflicts and offer taxpayers a more predictable tax environment. The Finance Ministry has stated that the proposed bill aims to simplify the tax system and make it more user-friendly for the average taxpayer to comprehend without the need for professional assistance. Additionally, Finance Minister Sitharaman has announced that the new bill will be 50% shorter than its predecessor, further enhancing its accessibility and clarity.
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Besides, the government intends to halve the length of the bill and use more straightforward language to enhance clarity for taxpayers regarding their tax obligations.
This is anticipated to result in a decrease in legal disputes and contested tax assessments. Unnecessary provisions will be eliminated, and the focus will be on using simple language that can be easily comprehended by individuals without the need for specialized tax assistance.
Features expected in the New Income Tax Bill
1. The goal of the new Income Tax Bill is to replace the current Income Tax Act of 1961 in order to streamline the law, making it more concise and user-friendly for interpretation.
2. Having a simplified tax code is expected to provide taxpayers with a clearer understanding of their legal obligations and exemptions. By reducing the complexity of the tax system, businesses can more effectively strategize and manage their finances. It is important for the government to minimize changes in tax provisions in order to facilitate better financial planning for businesses.
3. The existing Income Tax Act comprises 298 sections spread over 23 chapters, covering personal income tax, corporate taxes, securities transaction tax, and gift tax. There is speculation that the upcoming income tax Bill will result in substantial reductions to the current tax laws, possibly even halving them.
4. Streamlined residential status rule: Residential status determination rules will be simplified for better comprehension.
5. Consolidated provisions: The upcoming bill will include approximately half the number of provisions compared to the existing law.
6. Enhanced ease of compliance: The revised structure is focused on simplifying tax filing processes for taxpayers and authorities alike.
7. Simplified tax system: Reduction in deductions and exemptions will streamline the complexity of the tax system.
8. Standardized tax rates: The legislation may harmonize tax rates in line with international norms, fostering both domestic and foreign investments.
9. Decreased legal disputes: Clarity in tax laws is expected to decrease the instances of litigation.
Many experts have described the current Income Tax Act of 1961 as intricate, burdensome, and resulting in numerous legal disputes. The government has recognised the necessity for a revised and simplified direct tax law to minimize uncertainties and diminish litigation.
"The New Income Tax Bill, 2025, expected to replace the six-decade-old Income Tax Act, 1961, marks a transformative shift in India’s tax landscape. This anticipated reform aims to simplify the tax framework, making it more comprehensible for both taxpayers and tax authorities. By emphasizing a “trust first, scrutinize later” approach, the bill is likely to ease compliance while enhancing digital tax administration, further strengthening Faceless Scrutiny and Appeals. Striking a balance between taxpayer trust and regulatory accountability, this reform could drive economic growth, provide individual tax relief, and reinforce India’s position as a globally competitive economy," said Niyati Shah, Vertical Head - Personal Tax at 1 Finance.
Amit Maheshwari, Tax Partner at AKM Global, a tax and consulting firm, said: "The new bill is more likely to make the law simpler so as to make it easy to understand, comply with, and reinforce certainty. Changes such as deletion of outdated sections, lack of cross-referencing of the Act and rules, and fewer numbers of provisos and clauses are highly expected. Further, the compliance and assessment procedures are expected to be technology-driven. Moreover, the penalty mechanism is also expected to be overhauled to make them exclusively for stringent defaults."
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