Income Tax Bill 2025: The highly anticipated Income Tax Bill 2025 was tabled in Parliament on February 13, marking a significant step towards modernising India’s tax framework. The new Bill seeks to simplify the Income-tax Act, 1961 by applying three core principles: textual and structural clarity, continuity and certainty in tax policies, and predictability by maintaining existing tax rates.
The Bill is approximately half the size of the existing Act, making it more concise and a sort of ready reckoner. It consists of 23 chapters and 536 sections with nearly 2.60 lakh words, compared with the current Act’s 47 chapters, 819 sections, and nearly 5.12 lakh words. Many provisions have been consolidated and presented in a simple format, enhancing administrative efficiency, promoting tax certainty, and reducing litigation. The use of active voice instead of passive voice has further shortened the text, though experts caution that this shift could introduce interpretational challenges.
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Income Tax Bill 2025: Integration of Budget amendments
The proposed amendments outlined in Budget 2025-26 have been incorporated into the new Bill, making it a comprehensive and updated tax framework. This integration ensures that recent tax policy changes are aligned with the overarching legislative structure.
A key reform in the Bill is the introduction of the term ‘tax year’ as the unit period of taxation, replacing the dual references to previous year and assessment year. This change aligns with global best practices and is expected to streamline tax filing, payments, and compliance timelines.
The Bill seeks to streamline and simplify tax regulations by eliminating over 1,200 provisos and 900 explanations. These have been integrated as sub-sections and clauses for easier navigation. However, there is concern about whether tax officers will treat the Bill as a fresh slate or continue to apply interpretations established by courts under the current Act. The deletion of provisos and their reintroduction as sections could create legal uncertainties, given the differences in jurisprudence between provisos and standard sections.
The Bill replaces the phrase ‘notwithstanding anything contained’ (a non-obstante clause) with ‘irrespective of.’ This change requires careful interpretation, as the new language appears broader in scope than the existing formulation, potentially altering the application of tax provisions.
To maintain stability, the Bill includes savings clauses to ensure the application of key provisions from the existing Act. However, a crucial issue remains: will the established jurisprudence under the current Act continue to guide interpretations of the new Bill? Clarity on this front will be essential for a smooth transition.
Streamlined provisions for exempt income
The existing Act’s Section 10, which contains around 140 clauses related to exemptions, has been reorganised into six schedules. These schedules categorise exemptions by taxpayer type and are presented in tabular format for better readability.
The provisions for tax deducted at source (TDS) and tax collected at source (TCS) have been reformatted into separate tables for payments to residents and non-residents. While the new presentation improves clarity, complexities regarding multiple TDS rates and conditions remain, potentially leading to continued compliance challenges and disputes.
Issuance of new rules and forms
Stakeholder feedback has been incorporated into the Bill, particularly regarding the Dispute Resolution Panel. The DRP is now required to provide reasoned orders, clearly stating points of determination, decisions, and justifications. This move is expected to enhance transparency and efficiency in tax dispute resolution.
The Bill grants the Central Board of Direct Taxes (CBDT) the authority to issue rules and guidelines for its implementation. The Union government is also empowered to issue notifications and has a three-year window to address any difficulties arising from the transition. New rules, notifications, and updated tax forms will be introduced to ensure clarity and compliance.
The Income Tax Bill, 2025 represents a major overhaul of India’s tax system, looking to enhance clarity, efficiency, and taxpayer convenience. As it moves through legislative review, including scrutiny by a select committee before the next session in July 2025, taxpayers and professionals will closely watch its progress. With implementation scheduled for April 1, 2026, a smooth transition will be crucial to ensuring that the new framework delivers on its promises of simplicity and predictability.