The proposed Income Tax Bill, now circulated among Parliament members, aims to replace the Income Tax Act of 1961 with the Income Tax Act, 2025.
The bill, spanning 622 pages, is set to take effect from April 1, 2026.
As per a copy accessed by CNBC-TV18, the bill proposes 23 chapters and 16 schedules.
Until then, tax computation and reporting for FY 2024-25 and FY 2025-26 will continue under the existing law.
Structural and terminology changes
The new bill restructures tax law, reducing chapters from 51 to 23 but increasing sections from 298 to 536.
The word count has been cut by half from the existing 5.20 lakh words.
It also introduces simpler terms like “tax year” and “financial year” instead of “assessment year” and “previous year.”
Compliance and interpretation improvements
Explanations and provisos have been removed to simplify interpretation. The bill minimises cross-references to other sections and rules, allowing taxpayers to understand provisions without consulting multiple clauses.
It also introduces a Taxpayer’s Charter and strengthens digital compliance measures.
Key provisions and simplifications
The bill retains existing tax rates for individuals, corporates, and capital gains. It includes virtual digital assets under the definition of “property,” but taxation remains at 30%.
It also clarifies revenue recognition for service contracts, mark-to-market (MTM) loss provisions, and inventory valuation. Previously, these were part of the Income Computation and Disclosure Standards (ICDS).
Deductions for salaries, such as standard deduction, gratuity, and leave encashment, are now consolidated in one section instead of being scattered. Income categories that do not form part of total income are now placed in schedules for clarity.
A formula-based approach replaces verbose definitions, such as for Written-Down Value (WDV) of assets.
TDS provisions are now grouped under a single clause with tabular formats for better clarity. The bill also enhances penalties for misreporting, non-compliance, and incorrect disclosures.
The impact
Experts believe the bill simplifies tax laws but lacks major policy changes.
Sandeep Jhunjhunwala, M&A Tax Partner at Nangia Andersen LLP, said, “The new bill focuses on structural clarity rather than transformational reforms. It consolidates scattered provisions, making the law easier to navigate. Concepts like explanations and provisos have been removed to improve interpretation.”
Amit Maheshwari, Tax Partner at AKM Global, noted, “The bill eliminates redundant references and outdated clauses. Language has been simplified, replacing complex terms like ‘notwithstanding’ with clearer alternatives. TDS, presumptive taxation, and assessment time limits are now in tabular form. The Dispute Resolution Panel (DRP) must now provide detailed, well-reasoned orders, enhancing transparency.”
Munjal Almoula, Head of Tax at BDO India, emphasised that the bill does not introduce new tax burdens.
“The primary goal is to simplify compliance and remove redundant provisions. A streamlined tax framework should lead to faster refunds and improved taxpayer experience," he said.
Rohinton Sidhwa, Partner at Deloitte India, called the reform a step toward modernisation.
“The bill promises a more accessible tax system, fostering trust among taxpayers. Its success will depend on smooth implementation," he said.
Gouri Puri, Partner at Shardul Amarchand Mangaldas & Co., highlighted the shift to the term “tax year” for better alignment with global practices: “This simplifies readability by eliminating confusion caused by terms like ‘previous year’ and ‘assessment year.’"
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