What changes in the new Income Tax Bill 2025? Key highlights explained

New Delhi: The much-anticipated Income Tax Bill, 2025, is set to overhaul India’s taxation system with significant simplifications, including the replacement of complex terminologies like 'assessment year' and 'previous year' with the more comprehensible 'tax year'. The Bill also aims to eliminate redundant clauses and improve clarity, making tax compliance easier for individuals and businesses alike.

The new Income Tax Bill, 2025, which is expected to be introduced in Parliament on Thursday, will replace the existing 298 sections and 14 schedules in the six-decade-old Income Tax Act, 1961, with a fresh 526 sections, 23 chapters, and 16 schedules. The new law is designed to be more concise and user-friendly, spanning 622 pages, significantly fewer than the amendments-laden older law.

Introduction of the 'Tax Year' concept

One of the major changes in the new Bill is the introduction of a 'tax year', which is defined as the 12-month period beginning from April 1. This replaces the earlier system of income being assessed in an 'assessment year' for earnings in the 'previous year'.

Currently, under the Income Tax Act, 1961, income earned from April 2024 to March 2025 would be assessed in assessment year 2025-26. Under the new system, this complexity is eliminated, and only the 'tax year' will be used for reference.

The Bill is expected to come into effect from April 1, 2026, once it is reviewed by the Standing Committee and approved by Parliament.

Elimination of redundant and complex clauses

In an effort to make tax laws more understandable, the Bill has removed outdated sections, including those related to Fringe Benefit Tax. Furthermore, provisos and explanations—which often make tax laws difficult to interpret—have been eliminated to simplify the reading process.

Additionally, the frequently used word 'notwithstanding' in the current Act has been largely replaced with 'irrespective' to improve clarity.

The Bill also incorporates tables and formulae to make provisions related to TDS, presumptive taxation, salaries, and deductions for bad debts easier to understand.

Taxpayer's charter for rights and obligations

A significant inclusion in the new Bill is the 'Taxpayer’s Charter', which clearly outlines the rights and obligations of taxpayers. This move aims to make tax administration more transparent and user-friendly.

Changes in structure and volume of the new Bill

The new Bill retains 23 chapters, like the current law, but increases the number of sections to 536 from 298. However, the overall page count has been drastically reduced to 622 pages, compared to the voluminous Act currently in place, which has seen multiple amendments over the years.

When the Income Tax Act, 1961, was originally introduced, it contained 880 pages. Over the years, numerous amendments have made it more cumbersome. The new Bill consolidates these amendments into a streamlined version that is easier to navigate.

Clearer tax treatment on ESOPs and income categories

To reduce tax disputes, the Bill includes clearer tax treatment on Employees' Stock Options (ESOPs). It also integrates judicial pronouncements from the past 60 years to provide better clarity.

Furthermore, income categories that do not form part of total income have been moved to separate schedules, reducing unnecessary complexity in the main statute.

Expert reactions on the new Bill

Tax experts have welcomed the move towards simplification and ease of compliance. Sandeep Jhunjhunwala, M&A Tax Partner at Nangia Andersen LLP, highlighted that all TDS-related sections have been grouped under a single clause with simple tables, making them easier to understand.

“This would mean post-notification of this Bill, a lot of changes would be required in forms and utilities for reporting purposes,” he added.

Review process and public input

Finance Minister Nirmala Sitharaman had announced in the 2025-26 Budget that the new tax bill would be introduced during the ongoing session of Parliament. The move follows her earlier announcement in July 2024, calling for a comprehensive review of the Income Tax Act, 1961.

The Central Board of Direct Taxes (CBDT) set up an internal committee to oversee this review and ensure the new Act is concise, clear, and easy to understand. Additionally, 22 specialised sub-committees were formed to assess different aspects of the tax law.

Public feedback was also sought under four categories:

• Simplification of language
• Litigation reduction
• Compliance reduction
• Elimination of redundant or obsolete provisions

The government received 6,500 suggestions from stakeholders, reflecting strong public engagement in the process.

Once introduced in the Lok Sabha on Thursday, the Bill will be referred to the Parliamentary Standing Committee on Finance for further scrutiny and deliberations before being passed.

PTI