The introduction of the Income Tax Bill, 2025, in the Lok Sabha is a significant step towards modernising India’s direct tax regime. With its emphasis on simplification, clarity, and accessibility, the Bill aims to replace the outdated Income-tax Act of 1961, which has become convoluted over decades of amendments and additions. While the core structure of direct taxation remains unchanged, the Bill succeeds in reducing redundancy—making the law more concise and user-friendly for taxpayers and professionals alike.
One of the most notable features of the new Bill is its brevity. The word count has been almost halved from 5.12 lakh words to 2.60 lakh, with the number of sections reduced from 819 to 536. The removal of 1,200 provisos and 900 explanations aims to eliminate unnecessary complexity. This will eventually make compliance more straightforward. Additionally, the number of chapters has been cut from 47 to 23. Undoubtedly, these changes reflect a shift towards a more structured and intuitive tax law that aligns with the government’s broader agenda of governance simplification. A significant reform in the Bill is the replacement of the “assessment year” with the “tax year,” a move that is expected to eliminate longstanding confusion. Under the existing system, taxpayers have to navigate between the financial year and the assessment year. By defining the tax year as a straightforward 12-month period starting from April 1, the Bill ensures that income is taxed in the year it is earned. Another important change is the consolidation of tax provisions into tables, making them easier to comprehend. For example, deductions for rent paid, insurance premiums, provident fund contributions, and home loans are now clearly laid out in tabular format. The number of such illustrative tables has increased from 18 in the previous Act to 57 in the new Bill. This structured presentation will assist taxpayers and tax professionals in easily locating relevant provisions, eventually reducing the scope for misinterpretation and disputes.
The Bill also introduces greater transparency in dispute resolution. The section on the Dispute Resolution Panel (DRP) explicitly outlines the points of determination, decision, and reasoning behind rulings. This is expected to reduce ambiguity and ensure that decisions are more predictable. Additionally, redundant provisions related to capital gains exemptions, such as Section 54E (which applied to transfers prior to April 1992), have been removed. This will streamline the legal framework. A particularly noteworthy inclusion is the recognition of cryptocurrencies and other virtual digital assets (VDAs) as capital assets. By explicitly bringing these under the ambit of taxation, the Bill provides clarity on how gains from digital assets will be treated. Moreover, the powers of income tax authorities to access “virtual digital space,” including email servers, social media accounts, online investment and banking accounts, and cloud servers, indicate a shift towards a more tech-savvy and transparent tax administration system.
Despite these refinements, the Bill does not introduce any radical shifts in taxation rates or compliance mechanisms. This ensures continuity and stability for businesses and individuals. The absence of a table for tax rates under the old tax regime may suggest a gradual push towards universal adoption of the new tax regime, but for now, both systems remain in place. Similarly, penalties and procedural compliance provisions remain largely unchanged, ensuring a seamless transition from the old Act to the new framework. The Bill’s introduction aligns with the Modi government’s broader reform agenda, which includes the repeal of over 1,500 obsolete laws. It follows a trend of simplification seen in other legislative overhauls, such as the recent revamp of India’s criminal laws. While not as radical as the Bhartiya Nyaya Sanhita replacing the Indian Penal Code, the Income Tax Bill, 2025, is an important step towards tax certainty and ease of compliance.