Income-Tax Bill, 2025: How the new Bill helps taxpayers breathe easy

The essence of the Bill remains the same and the existing tax base, tax rates, computation mechanism etc. have been largely unchanged.

By Gaurav Mehndiratta
Finance minister Nirmala Sitharaman tabled the Income-Tax Bill, 2025 yesterday, which will replace the Income-Tax Act, 1961. With simpler provisions making the new Bill easy to comprehend, Gaurav Mehndiratta explains that both taxpayers and tax authorities are likely to benefit

Structural differences in the existing Act and the new Bill
The government has kept the course and the essence of the Bill very similar to the existing Income-Tax Act. The provisions have been simplified, and various redundant and obsolete sections have been omitted. At the same time, formulaes and tables have been inserted to enhance clarity and readability for any stakeholder. In the Bill, the words have been almost halved as compared to the existing law, and this demonstrates the efforts made in simplifying the law and attempting to bring in more tax certainty.

A key change is the replacement of concepts of ‘assessment year’ and ‘previous year’ with the term ‘tax year,’ in line with the globally used terminology. This will bring in more clarity for people to understand and carry out compliances.

Another example of the simplification is effective use of tables in the Bill. The various timelines in the existing income-tax law could be overwhelming to a reader, and the proposal to bring in a table for timelines should provide ease of understanding.

What are the additions and deletions?
The government had already been addressing requirements through continuous changes in the existing income-tax law. Some of the recent changes, which were warranted on account of the changing economic and compliance landscape, such as introduction of provisions relating to “Significant Economic Presence”, existing concessional tax rates and new tax regime, have been carried forward in the Bill. Similarly, various provisions, which have completed their life, such as Sections 80HHC and 10A (which were export income based benefits) have been removed completely from the law. The taxation of agricultural income still continues to remain exempt under the proposed Bill. While there are no changes from the TDS applicability/ implementation perspective, the provisions themselves have been made easy to understand by presenting them in a tabular form.

Is this version easier to understand?
Yes, the bill scores high on this aspect. It has delivered on simplifying the readability and interpretation of the tax law by using simple language as against traditional legal language. Wherever feasible, an attempt seems to have been made to present the provisions in a manner which makes it more concise and to the point. Provisos and Explanations have been removed from the sections, while inserting only necessary definitions placed at respective parts of the Bill. Similarly, we also see that there is a significant consolidation of related sections of the law at one place. For example, all the provisions pertaining to salary have been consolidated at one place for ease of understanding, and the taxpayer does not have to refer to separate chapters or parts of the law. In fact, there were close to 800-plus sections and sub-sections which has been reduced to 538 and word count has been reduced by 40%.

What remains unchanged?
The essence of the Bill remains the same and the existing tax base, tax rates, computation mechanism etc. have been largely unchanged. Even the assessment and appeal timelines are largely the same, though they are now tagged to a ‘tax year’ as compared to the existing concept of ‘assessment year.’ An important aspect to be noted is that the Bill also specifically clarifies that all matters/ proceedings for periods prior to April 1, 2026 would continue to be governed by the provisions of the existing Income-tax Act – and this brings in clarity in terms of the transitionary provisions.

The intent of the Bill is to consolidate and amend the law relating to income-tax for making it user friendly, and not to include additional means of collecting taxes. In terms of scope and applicability, the Bill carries forward the legacy from the existing law, and there are no specific changes included for any class of taxpayers. As had been stated by the government, there has been no addition in the Bill to widen the tax base.

Should we expect any updates later?
While the bill has been tabled, the same would go through the legal process to be enacted as an operating law which is proposed to be effective from April 1, 2026 and will apply from financial year 2026-27.

In the Bill, the government also has included powers for itself to pass orders for removing difficulties in giving effect to the provisions of the Bill for up to three years after the new code becomes effective. At the same time, one would also need to wait and watch the necessary guidance/ rules that would be prescribed under the Bill. It has also been separately clarified that the government would simultaneously carry out an exercise to develop a software to set up the systems and processes for various administrative and quasi-judicial functions. In summary, both, the taxpayers and the tax administration community are expected to benefit from the simplification exercise.

The writer is partner and national head, Corporate and International Tax, KPMG in India.