New Income Tax Bill, 2025: Is it a Zero-Sum Game?

After the third term re-election of the Indian Government, in the Budget speech, the finance minister (FM) announced a comprehensive review of the Income Tax (IT) Act, focusing on four primary pillars: simplification of language, litigation reduction, compliance reduction, and elimination of redundant provisions. This promise was fulfilled when the IT Bill, 2025 (Bill) was presented in the Lok Sabha yesterday to replace the existing law which is more than 6 decades old.

Key aspects of the new bill are given below

calendar_month

Effective Date

The Bill will take effect on April 1, 2026, allowing time for necessary consultations with stakeholders before its enactment which is a welcome move. The bill will first go to the Parliament’s Standing Committee on Finance for detailed examination before being enacted following the parliamentary approval process.

account_tree

Structure and Presentation

The Bill's total word count is approximately 55% of that of the existing law. This reduction was achieved by eliminating obsolete sections, such as those related to the dividend distribution tax, fringe benefit tax, lapsed tax holidays, etc. Additionally, lengthy sentences have been broken down into clauses, tables to improve readability. Furthermore, provisions previously scattered across the existing law, such as those related to non-profit organizations, start-ups, etc are sought to be grouped more logically.

checklist

Tax Year Concept

The concept of an "assessment year" has been removed, with the term "previous year" now referred to as "tax year." This is intended to align with commonly used terminology in tax legislation in other countries.

list_alt

Introduction of Taxpayer's Charter

The Bill includes a taxpayer's charter to ensure transparency and fairness in tax administration. It is expected that CBDT will issue guidelines from time to time to the field formations for administration of the charter.

receipt_long

Simplified TDS /TCS Sections

The Bill merges all TDS/TCS related provisions in one place and provides simplified tables for category wise rates, thresholds etc. as against current complex and lengthy provisions.

Are there any major policy changes or new Taxes?

Recent beneficial changes introduced in budgets, such as streamlining TDS/TCS provisions, reducing income tax slab rates under the new regime, introducing three-year block assessment for transfer pricing matters, and providing additional timelines for filing updated returns, etc have all been included in the bill. Additionally, there are no changes in the tax rates. Further no new taxes are introduced or reinstated like equalization levy for non-resident e-commerce operators, etc.

However, some wording changes provided in the Bill require detailed evaluation such as new methodology for interpretation of undefined terms in the treaties, interpretation of the term ‘information’ for reassessment of past years, certain simplified definitions, etc.

Conclusion

Although India's diverse economy rarely has a one-size-fits-all solution, the government's efforts to simplify the tax system and improve the ease of doing business are commendable. While no substantial amendments have been proposed, the overall simplification should benefit taxpayers in terms of ease of compliance and certainty of positions and to that extent, it should not be seen as a zero-sum game. However, a lot depends on administration once it becomes law. Detailed rules will be required for the smooth operation of the new law and additionally, it will be interesting to see how current judicial precedents, guidance, circulars and notifications, will apply in interpretation of the new law.

A version of this article was published by The Times of India Online on February 14 2025. The same can be read here