By Rama Karmakar
New Income Tax Bill 2025 explained: The proposed Income Tax Bill, 2025 (‘new bill’) expected to come into effect on 01 April 2026, which will replace the existing Income Tax Act, 1961 (‘Act’), was introduced in the Lok Sabha on 13 February. Taxpayers are quite keen to understand how these changes will impact their tax matters and responsibilities.
Here are 10 essential takeaways from the new bill that every taxpayer should know:
1. Simplified legislation: The new bill aims to simplify the current tax system by reducing the section count from 819 to 536 and reducing the word count by 40% to 50%. A significant number of explanations and conditions (provisos) have been removed.
2. Introduction of tax year: The new bill proposes the adoption of ‘tax year’ to eliminate confusion between terms like previous year (i.e., financial year) and assessment year. This will help provide clarity regarding tax payments, filing dates, and other compliance requirements. The tax year will generally run from 01 April to 31 March of the following year.
3. Simplification of legal language: Legal jargon and complex terms like ‘notwithstanding anything contained’ will be replaced with simpler language like ‘irrespective of anything contained.’ Formulas and tables have been added to clearly present key provisions, especially for salary perquisites, presumptive taxation and TDS/TCS rates. This move is designed to make the tax laws more understandable for taxpayers.
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4. Residency laws remain unchanged: The residency laws continue to remain the same. The new bill keeps the current residency provisions intact, which classify individuals into three categories of residents: Ordinarily resident, Not-ordinarily resident and Non-resident, which is determined basis physical presence in India.
5. Heads of income remain intact: The new Bill has proposed no change in heads of income compared to the existing Act. A welcome move in the new bill is the removal of many existing redundant provisions which have become obsolete over time.
6. Addition of new schedules: The new bill adds two new schedules, enhancing the total number of schedules to sixteen, to improve the organization of the new bill. Detailed sections from the current law have been moved to separate schedules for better clarity. However, the structure of twenty-three chapters, will remain unchanged for stability.
7. Easy referencing by salaried class: Salary-related provisions are now consolidated in one section for easier understanding, eliminating the need for multiple references. Deductions like gratuity and leave encashment are now part of the salary chapter. Allowances like Leave Travel concession and House Rent allowance are included in Schedule II and III of the new bill. The goal is improved readability through tables and formulas.
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8.Streamlined provisions for exempt Income: Existing provisions for exempt income, previously detailed in Section 10, are now moved to separate schedules. This restructuring ensures that the tax laws are clearly defined and organized.
9. Streamlining TDS rules: Tax Deducted at Source (TDS) regulations will be simplified under the new bill making it more transparent and easier for taxpayers to understand and comply with TDS obligations. While this will require updates to forms and reporting tools after the new Income Tax Act is implemented, it will ultimately simplify the process for taxpayers. The new bill allows taxpayers to apply for lower or nil withholding tax certificates across all TDS/TCS provisions, rather than a select few, thereby reducing compliance burdens for taxpayers
10. Budget 2025 updates incorporated: The changes proposed in Budget 2025, such as the new rates for the concessional tax regime have also been incorporated in the new Bill.
The Income Tax Bill, 2025 is a great start to simplify the existing Income Tax Act, 1961, which is more than six decades old and is expected to carry forward the spirit of ‘Nyaya’ as mentioned by the Finance Minister in her Budget 2025 speech. The new bill demonstrates the government’s dedication to fostering a tax ecosystem that is both transparent and efficient.
(Rama Karmakar is Partner, EY India. Rajesh Sureshan, Director, EY India also contributed to the article)
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