The Indian taxation system is set for a major transformation with the proposed Income Tax Bill, 2025, introduced in Parliament on February 13, 2025 (Today) before speaker Om Birla. This bill, if approved, will replace the existing Income Tax Act of 1961 and come into effect from April 2026.
General FAQs
1. When was the current Income-tax Act passed?
The current Income-tax Act was enacted in 1961 and came into effect on April 1, 1962. Since then, it has undergone more than 65 amendments and over 4000 changes, making it one of the most frequently updated laws in India.
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2. Why is there a need for a new Income Tax Bill?
Over time, the Income-tax Act, 1961, became bulky, complex, and difficult to understand due to frequent amendments, intricate legal language, redundant provisions, and heavy cross-referencing. The New Income Tax Bill, 2025, aims to simplify tax laws and improve compliance.
3. What are the key objectives of the new Income Tax Bill?
The main goal is to make tax laws simpler and more readable by reducing unnecessary provisions, improving clarity, and ensuring better compliance. It also aims to minimize litigation and tax disputes.
4. What changes have been made to simplify tax provisions?
To make tax laws simpler, the new bill follows these ground rules:
These changes reduce confusion, improve clarity, and make tax laws more accessible.
5. What structural changes have been made to the tax law?
The number of chapters has been reduced from 47 to 23, sections from 819 to 536, and words from 5.12 lakh to 2.6 lakh, making the Act easier to read and navigate.
6. Why was the concept of ‘Previous Year’ and ‘Assessment Year’ removed?
Taxpayers had to track two different periods—Previous Year and Assessment Year. Since 1989, the Previous Year was aligned with the financial year, so the new bill replaces both with ‘Tax Year’, making compliance simpler.
7. Did the government consult stakeholders while drafting the new bill?
Yes, the government analyzed 20,976 online suggestions, conducted meetings with industry experts, and consulted international tax authorities from Australia and the UK to ensure a balanced approach.
8. How has the readability of the tax law improved?
The new bill uses simpler language, shorter sentences, and logical structuring. It removes unnecessary legal jargon, incorporates more tables, and groups related provisions together for better readability.
9. How has the TDS (Tax Deducted at Source) system been simplified?
TDS provisions are now presented in clear tabular formats, separating rules for residents, non-residents, and cases where no TDS is required. For example, TDS on rent now includes clear thresholds and applicable rates in a structured format.
10. What changes have been made for salaried employees?
All salary-related provisions are now in one place instead of being scattered across multiple sections. Deductions like gratuity, leave encashment, and pension commutation are included within the salary chapter. House Rent Allowance (HRA) is moved to a dedicated schedule for easy reference.
11. What improvements have been made for Non-Profit Organizations (NPOs)?
Earlier, NPO-related provisions were spread across multiple sections (such as 11, 12, 80G, etc.). The new bill consolidates all NPO provisions into a single, structured chapter, making compliance easier.
12. What happens to exemptions under the new tax law?
Exemptions are now organized into schedules, making them easier to find and apply. For example, Schedule II covers agricultural income exemptions, while Schedule IV lists exemptions for non-residents. This structured approach improves accessibility.
13. Will the old and new tax laws co-exist?
Yes, to ensure a smooth transition, the Repeals and Savings clause protects existing exemptions, pending cases, and old compliance requirements so taxpayers are not unfairly affected.
14. What happens to tax rates under the new bill?
There are NO changes to tax rates. The bill simply restructures and simplifies existing provisions while incorporating amendments up to Finance Bill 2025.
15. What are the next steps after the bill is passed?
Once approved by Parliament, the government will notify new rules, update tax software systems, and conduct awareness programs to help taxpayers transition smoothly to the new system.
16. How does the new bill ensure fewer tax disputes and litigation?
The bill aims to reduce tax disputes by using clearer language, minimizing ambiguities, and consolidating related provisions into a single section. It also eliminates unnecessary provisos and explanations that previously led to multiple interpretations. By making the law easier to understand, it helps both taxpayers and tax officers interpret the rules consistently.
17. What steps have been taken to modernize and digitize tax compliance?
The new bill aligns with India’s digital tax administration goals by simplifying provisions related to e-filing, e-assessments, and online dispute resolution. The government will also update tax software systems to match the restructured provisions, ensuring a smoother transition.
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18. What impact will the new bill have on businesses and corporations?
For businesses, the new bill simplifies corporate tax compliance by consolidating deductions, exemptions, and international taxation rules into structured formats. It also streamlines provisions for startups, digital businesses, and multinational corporations, making compliance easier and reducing administrative burdens.
19. What changes have been made to deductions and exemptions for startups?
Provisions like Section 80IAC, which provides tax benefits to startups, remain in place but are now presented in a clearer, more structured manner. Startups will find it easier to identify applicable tax benefits without navigating multiple scattered sections.
20. Will taxpayers need to learn new rules from scratch?
No, the fundamental tax policies remain unchanged, meaning that most taxpayers will not need to learn an entirely new system. The bill retains key terminologies, deductions, and exemptions but presents them in a way that is easier to understand. A section-wise mapping of old and new provisions will also be provided to help taxpayers transition smoothly.
21. Which Chapters of the Income Tax Act, 1961 Have Seen the Largest Reduction in Words?
The New Income Tax Bill, 2025, has reduced the overall text, bringing it down from 5.12 lakh words in the Income-tax Act, 1961 to 2.6 lakh words. Several chapters have been streamlined by removing redundant provisions, simplifying language, and restructuring content for better readability.
One of the biggest reductions is seen in exemption-related provisions, which earlier had 30,000 words but have now been cut down to 13,500 words, reducing 16,500 words. The TDS/TCS (Tax Deducted/Collected at Source) provisions have also seen a major reduction from 27,453 words to 14,606 words, a cut of 12,847 words.
Non-profit organization provisions, which were spread across multiple sections, have been consolidated and simplified, reducing their length from 12,800 words to 7,600 words, saving 5,200 words.
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