Nirmala Sitharaman introduced the new Income Tax Bill in the parliament on Thursday following cabinet approval. India's tax system would be made simpler and more contemporary by the bill, which will replace the Income Tax Act of 1961.
Speaker Om Birla was persuaded by Sitharaman to send it to a House select committee. Despite opposition to the Bill during its introduction, the House approved a move to introduce it by voice vote.
Sitharaman urged Birla to send the draft bill to a House select committee, which will report by the first day of the next session, while he was proposing the Bill for introduction. She asked the speaker to make a decision regarding the guidelines and makeup of the proposed panel.
Additionally, it will make the legal jargon easier to understand for taxpayers.
No new taxes will be imposed under the bill. The finance secretary has previously stated that it will instead concentrate on streamlining tax legislation, lowering legal complications, and making it simpler for taxpayers to comply.
It will contain fewer provisos, explanations, and sentences. Additionally, according to the administration, the new law will be 50% shorter than the existing one. Reducing lawsuits is another important objective.
The law might make the tax system more taxpayer-friendly by lowering the penalties for some offenses.
There are 23 chapters and 298 provisions in the present Income Tax Act.It has rules governing gift taxes, corporation taxes, securities transaction taxes, and personal income taxes.
It is anticipated that the new law would not include any unnecessary revisions or sections and will use plain language that the general public can comprehend without expert tax advice.
The new tax structure will go into effect in the fiscal year 2025–2026 if the measure is approved. Taxpayers from the assessment year 2026–2027 will be covered.
"A major revision of India's tax laws is represented by the new Income-tax Bill, 2025, which marks a crucial turn towards the modernization and simplification of the Income-tax Act of 1961 (also known as "the 1961 Act"). The Bill, which is 622 pages long, simplifies the 1961 Act by substituting simple language for complicated legalese. The Bill's clever use of tables and formulas is another noteworthy feature that will make it easier to understand its provisions, according to Himanshu Parekh, Partner, Tax, KPMG.
The Bill aims to give taxpayers more predictability while lowering disagreements and litigation. It implements a "trust first, scrutinize later" strategy that adheres to the government's "minimum government, maximum governance" tenet. The Bill improves efficiency without requiring frequent legislative revisions by granting the CBDT the authority to establish tax administration rules and put digital tax monitoring systems into place, unlike the 1961 Act. A major turning point in India's tax system, the Bill is scheduled to go into effect on April 1, 2026, with the goal of establishing a more open and taxpayer-friendly system. Parekh went on.
What effect will it have on taxpayers?
Simplified legal wording, condensed clauses, and an emphasis on lowering litigation are the main features. The system will be more taxpayer-friendly under the new law, which would be roughly 50% shorter than the current Act and may also reduce the fines for some offenses.
Ten important lessons from the new Income Tax Bill that may affect taxpayers are as follows:
1. A single "tax year" idea will probably be introduced by the new bill, removing any ambiguity between the assessment year and the financial year and facilitating taxpayers' understanding of when to file returns and make tax payments.
2. No change to the fiscal year: The fiscal year, which runs from April 1 to March 31, will not alter in spite of modifications to the tax code. The calendar year will not be used as the tax year under the new law.
3. Updated section numbers: The new Income Tax Bill will update current sections, simplifying and streamlining tax rules. For instance, under the new system, Section 139—which deals with submitting income tax returns under the current Act—is probably going to be reorganized.
4. Residency laws will not change: Although some experts believe that changes are necessary, the new law will not alter the residency restrictions. Right now, these clauses divide people into three categories: "ordinarily resident," "non-ordinarily resident," and "non-resident."
5. Bill comprehensiveness: With 23 chapters, 536 sections, and 16 schedules, the new Income Tax Bill is more extensive than the current Act. This illustrates a more methodical approach to tax administration that incorporates contemporary compliance systems.
6. Simplified tax wording: The new measure substitutes simpler language for convoluted provisos and explanations. It improves clarity by combining standard deductions and gratuities into a single section. Additionally, corporate depreciation calculations will be made simpler.
7. Simplified TDS compliance: To make things easier to grasp, the TDS sections have been combined into a single phrase. However, after the new law is put into effect, this can necessitate modifications to forms and services.
8. Tax deadlines and slabs remain unchanged: The new measure gives taxpayers security and clarity by keeping the current filing dates and making no changes to the capital gains or income tax slabs.
9. Preservation of income categories: The bill suggests leaving the several heads under which income is classified unchanged. Nonetheless, it will eliminate more than 300 antiquated clauses that have been stale over time.
10. Timeline for implementation: According to experts, the new law will go into force on April 1, 2026, which means that taxpayers would still be required to file their taxes in March 2026 and under the current Income Tax Act for FY 2025–2026.
