New Income Tax Bill 2025

Finance Minister Nirmala Sitharaman introduced the new Income Tax Bill, 2025, in the Lok Sabha. The bill aims to replace the Income Tax Act, 1961, which has seen extensive modifications over the past six decades. The new legislation is expected to take effect on April 1, 2026, following its review by the Select Committee of Parliament and final approval.

The primary objective of the new Income Tax Bill is to simplify tax laws, making them more transparent, easier to interpret, and taxpayer-friendly. The bill aims to replace complex provisions with clearer ones, reducing legal disputes and encouraging voluntary tax compliance. The bill may also introduce lower penalties for certain offences, making the tax system more taxpayer-friendly.

The new Income Tax Bill is being reduced to 622 pages and contains 536 clauses. It will replace the existing 64-year-old law that runs into 823 pages with 819 sections. The proposed bill seeks to simplify the language by introducing clearer terms, such as replacing ‘assessment year’ with ‘tax year’.

The bill will eliminate various convoluted provisions and explanations to make it easier to understand and reduce the scope of legal disputes. Some archaic clauses are being dropped as part of the simplification process. The bill will not change the existing tax slabs or review the tax rebate given. Instead, it aims to make the six-decade-old legislation reader-friendly.

This reform is a significant step towards modernising India’s tax framework, bringing greater clarity and efficiency. The bill promises a more streamlined, accessible tax system, making it easier for citizens and businesses to fulfil their obligations while fostering trust in the system, says Rohinton Sidhwa, Partner, Deloitte India.

The new bill aims to streamline a tax law that had become overly complicated due to numerous amendments over the past six decades. The new bill has nearly halved the word count from 5.12 lakh to 2.60 lakh, making it more straightforward to understand. It eliminates over 1,200 provisos and 900 explanations, removing outdated provisions related to capital gains, deductions, and dispute resolution.

The bill also clarifies that virtual digital assets, like cryptocurrency, will now be considered a part of an assessee’s capital assets. This is a significant update, reflecting the evolving nature of financial assets and transactions in the digital age.

The bill also includes provisions for clearer tax treatment on employees’ stock options (ESOPs) to reduce tax disputes. It also includes judicial pronouncements of the last 60 years for more clarity. The CBDT can now frame tax administration rules, introduce compliance measures, and enforce digital tax monitoring systems without requiring frequent legislative amendments as per the Clause 533.

The bill introduces a “trust first, scrutinise later philosophy, aligning with the government’s ideology of “minimum government and maximum governance.” This approach is expected to foster a more transparent and taxpayer-friendly environment.

The bill is expected to foster a more transparent and taxpayer-friendly environment, encouraging voluntary tax compliance and fostering trust in the tax system. The new legislation is a testament to the government’s commitment to modernising India’s tax framework, bringing greater clarity and efficiency to the system. It is a significant step towards fostering a more streamlined, accessible tax system, making it easier for citizens and businesses to fulfil their obligations while fostering trust in the system.