Key Highlights of New Income Tax Bill, 2025

History of Income Tax Legislation in India

India’s income tax story begins during British colonials rule. The first Income tax appeared in 1860 , primarily to fund the British Empire after the 1857 rebellion . It was a short lived experiment, but it laid the ground work for future income tax legislation in India. Indian Income Tax Act of 1886 introduced a more comprehensive system. It taxed income from property, salaries and profits using progressive rates. The Income Tax Act of 1922 overhauled the existing structure, moving away from British imperial objectives. It marked a significant milestone in Indian tax history. But during the 1950s and early 1960s, the 1922 Act was found insufficient.  India’s economy had undergone significant changes, including industrialisation and increased foreign trade. To address the changed scenario, Income-Tax Act, 1961 was enacted which is in force till today.

The current Income-tax Act was enacted in 1961 and came into existence with effect from 01.04.1962. It has been amended nearly 65 times with more than 4000 amendments, year on year through Finance Acts, based on the evolving requirements of modifications in taxation policy. However, over the time, concerns have also been expressed over the accumulation of amendments, the intricate language, detailed provisions, redundancies and the heavy structure of the Income-tax Act. There was need to address such issues. Some efforts were made in between to rationalise the same. Now the Income-tax Bill, 2025 has been tabled in Parliament on 13th February 2025, marking a significant step toward simplifying the language and structure of the Income tax Act, 1961.

New Income Tax Bill, 2025

The Hon’ble Finance Minister in  the budget speech in July,2024 had stated that the purpose of the comprehensive review of the Income tax Act ,1961 is to make the Act  “concise, lucid, easy to read and understand “.Finally, the new Income Tax Bill was tabled in the Parliament on February to meet the aforesaid objective.

As per the CBDT presss release dt. 13/2/2025 the simplification exercise was guided by three core principles:

1. Textual and structural simplification for improved clarity and coherence.

2. No major tax policy changes to ensure continuity and certainty.

3. No modifications of tax rates, preserving predictability for taxpayers

Simplification and rationalisation of the existing Income Tax law:

An overview of the new Income Tax Bill, 2025 indicates that much simplification has been done to meet the aforesaid objective. The following table gives a bird ‘s eye view:

(a) Quantitative Impact

(b) Qualitative Improvements

As per the FAQ’S released the following ground rules have been considered for simplifying the existing provisions:

i) The Bill proposes to eliminate redundant provisions, reducing its length by nearly half.

ii) Sub-sections and clauses have been used, instead of relying on provisos and explanations for exceptions and carve-outs. All provisos (about 1200) and explanations (about 900) have been removed.

iii) Simplified system for cross referencing of sections, sub-sections, clauses etc. have been used for instance section 133(1)(b)(ii) in the new bill would indicate sub-clause (ii) of clause (b) of sub-section(1) of section 133 in the existing Act. This change makes the Act’s language easier to understand.

iv) Extensive use of tables, formulae for enhanced clarity. More than 570 tables have been incorporated compared to 18 tables in the existing Act.

v) Consolidation of provisions scattered across various sections/Chapters relating to a single issue.

vi) While the existing Income – Tax Act contains 298 numbered sections, effective sections in the current Act are 819. This is because other than numeric section numbers there are large numbers of section with alpha – numeric codes such as 115A to 115WM (117 sections) and so on. In the proposed Bill, all sections are in numeric.

Other simplification Measures

A significant aspect of the Bill is the elimination of the concepts of ‘previous year’ and ‘assessment year’. The concept of ‘tax year’ has been introduced replacing ‘previous year’ and ‘assessment year.

It has been stated in the FAQs that the chapters on Salary and House Property have been specifically crafted so that the tax payer can on his own read those chapters and file his own return of income.

TDS and TCS provisions have been made easier to comprehend by providing tables. There are separate tables for payment to residents and non-residents, and where no deduction at source is required.

The provisions related to Non-Profit Organizations were present at different places in the existing Act, in section 11, section 12, section 12A, section 12AA, section 12AB, section 13, section 115BBC, section 115BBI, section 115TD, section 115TE, section 115TF. The provisions related to approval are under the first and second proviso to section 80G (5). These have been simplified and consolidated into one chapter. All the provisions related to registered Non-Profit Organisations have now been arranged in Part B of Chapter XVII titled “B.–– Special Provisions for Registered Non-Profit Organisatin” in the new Bill.

Summing UP

It has been stated that the main objective of the proposed new legislation is to make it concise, lucid, easy to read and understand. Therefore, while no major policy related changes have been made in the Bill, the above aspects have led to proposed ‘material ‘changes.

However, it should be noted that about only 5 % of the citizens of the country pay Income tax and 95 % of the people have nothing to do with the Income Tax provisions. Even for many of those who file their Income Tax returns,  limited sections/provisions are relevant and most of them depend on their CAs/Tax consultants/ Advocates. Concerns have been raised whether rationalisation of the existing Income Tax Act mainly to make it simple, easy to understand, to redraft in simple language have led to ‘material ‘changes. The Income Tax Act is mainly studied by the CAs/ Advocates/Tax Consultants/Tax Experts/ students/ Tax officials/Judiciary etc. who by virtue of their training and studies have adapted to such legal language and have actually become conversant with the same. Moreover, since most of the sections numbers have been changed, the entire new Act will have to be studied afresh by the stakeholders and it will be a major challenge. Already stakeholders have become busy in comparing the old Act with the new Bill and in absence of much policy changes whether such heavy investment of mandays/ manhours  warranted. Another issue is that the laws are dynamic and in the coming 10-15 years, this proposed bill is also bound to be voluminous as in the case of GST where we are seeing very frequent changes. Further, the redundant provisions have been removed from the new Bill but the Repeals and Savings Clause is there and all such redundant provisions though not in the new Bill will be there in the existing Act.

Despite these concerns, the new Income Tax Bill, 2025 is a welcome move . Bill has been already tabled in the Parliament. It is to come into force from the 1st day of April, 2026. Since the changes brought about in the new Bill can only be understood by extensive study of the same, stakeholders need to have a thorough study and threadbare discussion. There is need to learn, unlearn and relearn.