New Income Tax Bill 2025 – New ray of hope!

The much awaited new income-tax bill has been tabled before the Lok Sabha and is likely to be implemented from 1 April 2026 once it receives necessary approvals. As highlighted by the Finance Minister in her budget speech earlier this month on 1st February, the new income-tax bill is expected to be clear and direct and easy to understand for both the taxpayers and the tax authorities. This aims to reduce litigation and enhance tax certainty by trusting the taxpayers.While the new income-tax bill is not expected to bring in any major changes in terms of provisions of law, monetary thresholds and timelines, the legislative text has been simplified to make it more understandable and easier to comprehend. For instance, the phrase ‘notwithstanding anything contained’ is proposed to be replaced by ‘irrespective of anything contained’ to make it easier for the taxpayer to read and understand the law. As per the draft income-tax bill, the provisions of law have been streamlined in simpler pointers to replace several provisions (about 1200) and explanations (about 900) in the existing law.

This was much needed because there have been several updates and changes in various provisions over the years which made the final legislation rather complicated. The new income-tax bill also has several tabulated presentations of various deductions and exemptions and formula to derive the required values, which, under the current law, were mentioned in complicated text format spread over different sections and rules, making it difficult for taxpayers to understand.

Areas like salary perquisites, presumptive taxation, and withholding tax provisions (TDS/ TCS) should now become easier to understand. Wherever the sections have detailed or multiple sub-sections in the current law, these have been shifted to distinct schedules.

The proposed bill replaces the terms ‘previous year’, ‘financial year’ and ‘assessment year’ with a single nomenclature i.e. ‘tax year’ to remove confusion in interpreting the timelines provided for various compliances both for the taxpayers and tax authorities. There has been no change in the timelines to file income tax returns and the tax slabs and tax rates applicable to the individuals. Interestingly, the new income-tax bill continues the option to opt for old tax regime, which many expected to have a sunset clause given the government’s focus on sweetening the new tax regime since its introduction.

This implies that various exemptions and deductions available under the old tax regime to reduce ones’ taxable income have been carried forward in the new income-tax bill. This would provide an opportunity to the taxpayers to analyse which regime is more beneficial for them and does not forcefully impose the selection of new tax regime which is sans the incentive of exemptions and deductions.The government has been making efforts to rationalise the withholding tax provisions. To improve ease of paying taxes, the Bill proposes that a taxpayer can apply for lower withholding tax certificate under all TDS/TCS provisions instead of only a select few, as in the current law. It is an important step to reduce compliance for taxpayers at large.
The new income-tax bill has also incorporated the changes of Budget 2024 which were enacted and the proposed changes of Budget 2025 to provide a wholesome legislature.

The new bill also contains provisions to allow a smooth transition to the new law, for instance, continuing with the pending proceedings. The Bill would be examined by the Parliamentary Committee, and it is hoped that consultations will be held with the stakeholders.

All in all, the new income-tax bill lives up to the intent of the government to simplify the language and bring more clarity in provisions which have been marred with complexity of technical jargon, especially with multiple changes in law over the years. Once passed, the new bill is expected to reduce litigation by providing a clearer framework for compliance and administration and help save resources of the taxpayers and the tax authorities.

(The author Shalini Jain is a Tax Partner at EY India. Akshay Sharma, Senior Manager, EY India also contributed to this article)