In a significant move aimed at overhauling India’s income-tax framework, the Union Cabinet has approved the introduction of the New Income-tax Bill, marking a transformative step towards simplifying tax laws and reducing litigation.
This follows Finance Minister Nirmala Sitharaman’s announcement during her Budget 2025-26 speech, where she reiterated the need for a comprehensive review of the existing income tax law to align it with contemporary economic and public realities.
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The New Bill, which seeks to replace the six-decade-old Income-tax Act of 1961, is expected to streamline the tax regime, making it more taxpayer-friendly and easier to administer. With a focus on simplification, the proposed legislation is anticipated to reduce the existing law by nearly half in terms of chapters and word count, ensuring clarity and ease of understanding for both taxpayers and tax authorities.
Single Tax Regime: The Bill is expected to converge multiple tax regimes into a unified framework, reducing compliance burdens and providing greater tax certainty for individuals, companies, and other entities.
Rationalization of Withholding Tax: The withholding tax provisions are likely to be simplified further, with potential reductions in rates and increased thresholds to ease the tax burden on businesses and individuals.
Anti-Abuse Provisions: The New Bill aims to clarify exceptions to anti-abuse provisions, addressing unintended consequences for genuine transactions and promoting ease of doing business.
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Litigation Reduction: Measures such as pre-litigation mediation, new dispute resolution mechanisms, and a defined litigation policy are expected to significantly reduce the lengthy litigation lifecycle, which currently spans up to a decade.
Removal of Obsolete Provisions: Redundant and outdated provisions in the current law will be eliminated, making the tax framework more precise and objective.
The government’s approach to codifying income-tax laws through the lens of ‘justice’ (Nyaya) rather than ‘punishment’ (Danda) reflects its commitment to building trust among taxpayers. Over 6,500 public suggestions were considered during the drafting process, showcasing active stakeholder involvement. Additionally, the Central Board of Direct Taxes (CBDT) formed an internal committee to oversee the review and drafting of the Bill over a six-month period.
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