New Income Tax Bill 2025: Finance Minister Nirmala Sitharaman launched the New Income Tax Bill 2025 in Lok Sabha earlier this week. The New Income Tax Bill is anticipated to exchange the a long time previous Income Tax Act 1961. It is easier and simpler for the taxpayer to know, says the federal government. The authorities has launched an inventory of high 30 FAQs that taxpayers could have in regards to the New Income Tax Bill 2025. We have a look:
New Income Tax Bill 2025: Top 30 FAQs Answered
1. When was the present Income-tax Act handed?
The present Income-tax Act was enacted in 1961 and got here into existence with impact from 01.04.1962. It has been amended almost 65 instances with greater than 4000 amendments, yr on yr via Finance Acts, based mostly on the evolving necessities of modifications in taxation Policy.
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2. What issues have been raised concerning the Income-tax Act 1961?
Tax directors, practitioners and taxpayers have acknowledged the contribution of
the Income-tax Act, 1961 in general tax governance and financial system. However, over the time issues have additionally been expressed over the buildup of amendments, the intricate language, detailed provisions, redundancies and the heavy construction of the Income-tax Act.
3. What are the explanations for normal amendments within the Income Tax Act as in opposition to different Acts?
The Income-tax Act is dynamic laws requiring common updating and amendments to mirror the nation’s altering financial, social, and political realities. Criminal and different civil legal guidelines don’t bear such frequent updating and amendments whereas the Income-tax Act is repeatedly up to date (on annual foundation) to mirror the financial modifications, fiscal insurance policies, and authorities priorities. It, subsequently, adapts to modifications within the financial system, enterprise environments, inflation charges, revenue sources, and world monetary traits. The authorities has launched tax reforms to encourage particular sectors of the financial system whereas balancing the identical with necessities of income assortment and widening/deepening of the tax base. Given its direct hyperlink to taxation and financial circumstances, the Act must be extra adaptable to mirror shifting financial insurance policies, altering incomes, inflation, and rising industries. The dynamic nature of the Income-tax Act offers it flexibility to accommodate new financial traits.
Examples:
i. To promote exports, particular provisions akin to 80HH, 80HHC have been introduced into the statute. The similar having served meant objective have been since omitted or made inapplicable after solar set date.
ii. To promote infrastructure growth, part 80IA was introduced into Income-tax Act, 1961.
iii. Sections 80HHE, 10A and 10AA have been launched for facilitating software program exports.
iv. Section 80IAC is yet one more instance of encouraging the start-ups.
4. Why has the Income-tax Act 1961, change into cumbersome over time?
The revenue tax legislation has change into more and more cumbersome over time, with its conventional type of drafting and quite a few amendments. The complexity of language within the current Act is a product of various elements. To hold tempo with sure authorized pronouncements, explanations and provisos have been typically inserted to make clear legislative intent. Changing taxation priorities additionally led to introduction of further textual content to an in any other case easy provision. Further, sure provisions remained within the statute, regardless of changing into non-operational, in view of pending claims/points from earlier years.
5. What simplification efforts have been made prior to now?
Attempts have been made prior to now, together with these in 2009 and 2019 for simplification of the Income tax Act. The suggestions from these efforts, as regards coverage, have been thought-about within the amendments carried out occasionally.
6. Has the current simplification train thought-about worldwide expertise of different international locations who’ve undertaken related train?
Simplification of tax legal guidelines has acquired consideration globally. Countries have undertaken related workouts to reinforce readability and compliance of their taxation legal guidelines. In the UK, the method was carried out throughout the interval 1994 to 2010 for simplifying the language. Before simplification, the UK Income and Corporation Tax Act, 1988 comprised 960 pages. However, after simplification, it was divided into 5 separate Acts, with their web page counts elevated, leading to a extra segmented however general bigger physique of tax legislation.
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Similarly, Australia underwent an identical course of throughout 1994 to 1997, the place simplification of language additionally resulted in an extended tax code.
These worldwide experiences emphasize the fragile steadiness between simplification and the necessity for clear, unambiguous authorized language. Drawing from these classes, effort has been made to focus not simply on linguistic simplification but additionally on structural rationalization.
7. What is the scope of train undertaken for the brand new Income-tax Bill?
The Hon’ble Finance Minister within the finances speech in July 2024 said that the aim of the excellent evaluation of the Income-tax Act, 1961, is to make the Act “concise, lucid, easy to read and understand”.
8. What floor guidelines are set for making the prevailing provisions concise, lucid, straightforward to learn and perceive?
Following floor guidelines have been thought-about for simplifying the prevailing provisions:
i. The Bill proposes to remove redundant provisions, lowering its size by almost half.
ii. The drafting type of the brand new Bill is easy and clear, making the provisions simpler to know by incorporating greater than 57 tables in comparison with 18 tables within the Income-tax Act, 1961. Sub-sections and clauses have been used, as an alternative of counting on provisos and explanations for exceptions and carve-outs. This minimises cross references and battle by aggregating all relevant provisions associated to a single state of affairs in a single place.
iii. All provisos (about 1200) and explanations (about 900) have been eliminated.
iv. The 1961 Act accommodates quite a few cross-references to sections, sub-sections, clauses, sub-clauses, gadgets, and sub-items, making the provisions difficult to interpret. The new Bill adopts a simplified reference system, permitting provisions to be cited by merely mentioning the part. For occasion, part 133 (1)(b)(ii) within the new invoice would point out sub-clause (ii) of clause (b) of sub-section (1) of part 133 within the current Act. This change makes the Act’s language simpler to know.
v. A big side of the Bill is the elimination of the ideas of ‘previous year’ and ‘assessment year’. Prior to 1989, the idea of ‘previous year’ and ‘assessment year’ had been introduced as a result of the taxpayers may have completely different twelve-month earlier years for every supply of revenue. From 1st April 1989, earlier yr was aligned to a monetary yr in all circumstances. However, ‘assessment year’ continued for use for varied proceedings beneath the Act. Thus, a taxpayer was required to trace two completely different durations, i.e., the ‘previous year’ in addition to the ‘assessment year’. This introduced difficulties in complying to the provisions of the Act particularly for a brand new taxpayer who needed to hold monitor of ‘previous year’, ‘assessment year’ in addition to ‘financial year’.
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9. Whether any consultations have been accomplished with stakeholders, whereas drafting new Bill?
A complete consultative course of was undertaken for the simplification train. A complete of 20,976 on-line options for simplification and elimination of redundancies have been acquired, analysed and related options have been categorized into policy-related, language simplification, elimination of redundant or out of date provisions, and so forth. Meetings with business {and professional} associations have been held and field-level brainstorming classes have been held inside the Income Tax Department, in the direction of this train.
At the worldwide stage, consultations have been held with a few of the taxation authorities that had undertaken related train within the current previous, viz. the Australian Tax Office and Treasury, and the UK’s Office of Tax Simplification.
The paperwork ready in 2009 and 2019, have been additionally referred, whereas enterprise the train. International and nationwide steerage materials akin to (*30*) issued by Legislative Department, Ministry of Law and Justice, was studied for simplification of authorized language.
10. What processes have been adopted in conducting the simplification train?
In addition to the stakeholder train talked about in Q I.9, options have been sought from taxpayers, business {and professional} associations, and discipline stage officers of the Department. A committee of round 150 officers of the Department was actively concerned in all the train. The Committee ready the draft textual content of varied chapters, which was meticulously vetted by the Legislative Department of Ministry of Law and Justice, and consolidated within the type of the ultimate Bill, after obligatory approvals.
More than 60,000 man-hours have been devoted by the workforce for finalising the brand new Bill.
11. How has the readability improved within the new Bill?
The readability of tax legislation has been improved through the use of easier language, as in opposition to conventional authorized language. Where a number of conditions are coated, the sections have been made enumerative. Wherever possible, intensive use of desk codecs has been made. TDS provisions have been introduced in a tabular type. Certain provisions akin to part 10, which contained about 150 clauses has been positioned in Schedules and introduced within the type of tables.
As a results of the excellent train, the scale of the brand new Bill has diminished by about half on one hand and one the opposite, the provisions have been consolidated and introduced in a consumer pleasant format.
12. What is the therapy of quite a few ‘provisos’ and ‘explanations’ and procedural elements within the current Act?
Provisos (greater than 1200) and Explanations (greater than 900) have been eliminated, with their simplified content material positioned as sub-sections or clauses. Wherever possible, procedural elements and particular particulars are proposed to be offered by means of Rules.
13. Have the redundant provisions of the Income-tax Act 1961 been eliminated within the new Income-tax Bill?
Yes. Certain provisions turned redundant on account of quite a few amendments and/or coverage modifications through the years. This resulted in giant variety of such provisions within the Act. For instance, deduction beneath part 10A, which was a particular provision for newly established industrial undertakings within the free commerce zones, is not out there from the Assessment Year 2012-13, onwards. Such out of date provisions have been faraway from the textual content of the Bill.
However, provisions relevant to earlier Assessment Years shall be ruled by Repeal and Savings provisions.
14. What different steps have been taken to reinforce readability within the new Bill?
In addition to elimination of ‘provisos’, ‘explanation’ and redundant provisions, formulae, tables, and buildings have been used to reinforce readability within the new invoice. To the extent potential, provisions involving the identical points, which have been current in numerous chapters within the present Act, have now been consolidated. Redundancy has been eliminated and definitions at a number of locations have been consolidated.
In case of provisions regarding Non-Profit organisations (NPOs), all the textual content associated to NPOs has been consolidated and structured into 7 sub-parts which comprise provisions associated to Registration, Income, Commercial actions, Compliances, Violations, Registrations for the needs of eligibility of donations and Interpretations.
15. How have ideas of Tax Certainty adopted in drafting of the brand new Income Tax Bill?
The new Income-tax Bill is roughly half the size of the prevailing Income-tax Act 1961, with vital re-organisation of provisions in numerous sections. While enterprise simplification train, a acutely aware try has been made to minimise the scope of litigation and contemporary interpretations. For this objective:
a. Key phrases/phrases, particularly the place courts have given rulings, have been retained with minimal modifications.
b. Language has been simplified by use of quick sentences to the extent potential.
c. Sections have been translated into row or sub-rows in tables, lowering the variety of phrases and bringing readability.
d. Provisions have been made clear to attenuate scope for a number of interpretations. The provisos and explanations have been eliminated and simplified content material has been positioned as sub-sections and clauses.
e. Provisions associated to worldwide taxation have been handled, broadly, to make sure tax certainty.
f. NGO chapter has been made extra complete with use of plain language.
g. Exemption sections, for instance part 10 within the current Act, has been made easier via tables and putting giant variety of provisions in Schedules.
h. Formulae and tables have been used to reinforce readability, wherever possible.
i. Provisions involving similar points and definitions, which have been current in numerous chapters within the current Act have been consolidated, to the extent potential.
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16. How does the brand new Bill examine to the Income-tax Act, 1961 by way of numbers of Chapters, sections and phrases?
There has been a major discount within the textual content of latest Bill, compared to the prevailing Income Tax Act, as summarised beneath.
* Effective Sections
Besides about 1200 Provisos and 900 Explanations have been eliminated.
17. What is the premise of the assertion that the Income tax Act, 1961 consists of 819 sections, whereas the textual content of the Act solely mentions sections until 298?
During the course of quite a few amendments to the Income tax Act, 1961, a number of coverage selections have been integrated as separate provisions. Many a instances such provisions have been linked to already current sections and accordingly the brand new sections have been numbered in continuation to the prevailing sections. For instance, a number of provisions regarding tax on particular circumstances have been inserted as sections beginning with 115 collection viz 115 AC,115AD, 115JB, 115VP and so forth.
As a results of such insertions, efficient sections current within the Income tax Act, 1961 are 819.
18. Why does the brand new Bill nonetheless comprise 536 sections and a pair of.6 lakh phrases?
While the prevailing Income-tax Act accommodates 298 numbered sections, efficient sections within the present Act are 819. This is as a result of aside from numeric part numbers there are giant variety of sections with alpha-numeric codes akin to 115A to 115WM (117 sections) and so forth. The Income-tax Act not solely offers with levy of tax however it’s a complete doc, which encompasses all elements of tax administration. It additionally contains different elements akin to:
(a) laying down the executive framework, assigning roles and tasks for assessing officers, taxpayers, tax deductors, and professionals and so forth;
(b) setting out the framework for revenue willpower, timelines, appellate procedures, enforcement, assessments, and penalties; and
(c) making an allowance for the impression of interpretations on financial coverage, affecting each home and worldwide investments.
The new Bill proposes 536 sections to fulfill the above-mentioned necessities.
Further, a number of sections within the new Bill exist primarily to honour the commitments beneath the prevailing tax regime, together with provisions regarding Minimum Alternate Tax (MAT), varied deductions and exemptions, and so forth. These provisions will stay in power till their respective sundown clauses take impact. Therefore, these are required to be a part of new Bill to make sure a clean transition, whereas sustaining authorized and coverage continuity.
19. Whether the simplification train has led to no ‘material’ change?
The simplification train, inter-alia, encompasses following elements:
i. Redundant provisions of the Income tax Act have been eliminated;
ii. Sub-sections and clauses have been used, as an alternative of counting on provisos and explanations for exceptions and carve-outs;
iii. Simplified system for cross referencing of sections, sub-sections, clauses and so forth has been used;
iv. Extensive use of tables, formulae for enhanced readability;
v. Consolidation of provisions scattered throughout varied sections/ Chapters regarding a single situation; and so forth
Since there have been common amendments to the Income Tax Act, 1961 together with amendments proposed in Finance Bill, 2025, the Act stands up to date from coverage perspective. All amendments proposed upto Finance Bill 2025 have been duly integrated within the new Income tax invoice 2025. Therefore, whereas no main coverage associated modifications have been made within the Bill, the above elements have led to proposed ‘material’ modifications within the current legislation.
20. Whether any mapping of previous and new sections shall be out there?
Section-wise mapping shall be made out there on the official web site of the Income Tax Department.
21. How has ‘earlier yr’ and ‘evaluation yr’ been handled within the new invoice?
The idea of ‘tax year’ has been launched changing ‘previous year’ and ‘assessment year’. The timelines and computation within the Bill at the moment are as regards to the monetary yr for which the revenue is liable to be taxed. It is anticipated that using ‘tax year’ will make the brand new Bill simpler to understand. Further, lots of the comparable tax jurisdictions on this planet are utilizing one single time period, for objective of denoting the unit interval of taxation. ‘Tax year’ is often utilized in many international locations.
With the introduction of ‘tax year’, broadly the next ideas have been adopted:
i. ‘Tax Year’: Unit interval of taxation. This time period shall be referred in respect of all transactions and revenue for that interval.
ii. ‘Financial Year’: For functions of timelines for compliance and for procedural points.
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22. How have the provisions of TDS and TCS been simplified within the new invoice?
TDS and TCS provisions have been made simpler to understand by offering tables. There are separate tables for fee to residents and non-residents, and the place no deduction at supply is required. For instance, the proposed provisions regarding TDS on lease are proven beneath:
(Reference might be made to Table in proposed part 393 of the Bill)
23. What has been accomplished to simplify the provisions associated to Non-Profit Organizations?
The provisions associated to Non-Profit Organizations have been current at completely different locations within the current Act, in part 11, part 12, part 12A, part 12AA, part 12AB, part 13, part 115BBC, part 115BBI, part 115TD, part 115TE, part 115TF. The provisions associated to approval are beneath the primary and second proviso to part 80G (5). These have been simplified and consolidated into one chapter. All the provisions associated to registered Non-Profit Organisations have now been organized in Part B of Chapter XVII titled “B.–– Special Provisions for Registered Non-Profit Organisation” within the new Bill.
<p>Special Provisions for Registered Non-Profit Organisation<br></p>
24. What simplification has been carried out for salaried staff within the new invoice?
All the provisions pertaining to wage have been consolidated at one place for ease of understanding in order that the taxpayer doesn’t need to discuss with separate chapters for submitting his return of revenue. The deductions which have been earlier allowed beneath part 10 of the Income Tax Act,1961, like gratuity, depart encashment, commutation of pension, compensation on VRS and retrenchment compensation, at the moment are a part of the wage chapter itself. Some of the allowances like HRA at the moment are offered in Schedule II of the brand new Bill that finds reference within the provisions regarding wage. The goal was to enhance readability by means of offering tables and formulation.
While the chargeability of all of the perquisites has been retained within the Act, their valuation, circumstances and exceptions have been shifted to Rules as they don’t have an effect on every taxpayer. Similarly, redundant and repetitive provisions have additionally been eliminated for higher readability.
25. What modifications are being made to exemptions for particular incomes and individuals?
Provisions regarding exemptions for particular incomes and individuals are being moved to separate schedules for simpler reference and easier compliance as follows:
Schedules
26. What are the following steps after the brand new Bill is launched?
Stage 1: Bill is handed by the Parliament and turns into an Act
Stage 2: Operational and delegated laws framework
i. Notification of latest Rules and Forms.
ii. Simultaneous train of software program growth to arrange the methods and processes for varied administrative and quasi-judicial capabilities.
27. How will the previous and new provisions co-exist?
Various aspects of compliance for the respective years have been talked about within the Repeals and Savings clause within the Bill, which is able to safeguard all rights and liabilities accrued beneath the previous legislation.
28. What are the modifications on charges and different coverage within the new invoice?
There aren’t any modifications associated to charges. Since there have been common amendments to the Income Tax Act, 1961 together with amendments proposed in Finance Bill, 2025, the Act stands up to date from coverage perspective. All amendments proposed upto Finance Bill 2025 have been duly integrated within the new Income tax invoice 2025. Therefore, whereas no main coverage associated modifications have been made within the Bill, the above elements have led to proposed ‘material’ modifications within the current legislation.
29. Why is it that on comparability of latest Income Tax Bill and earlier provisions, it’s discovered that in some circumstances viz ‘virtual digital assets’, and so forth there are particular modifications?
The Income Tax Bill 2025 additionally accommodates all amendments proposed in Finance Bill 2025. Therefore, the customers are suggested to match the provisions of the Income Tax Act, 1961, as up to date with proposed amendments in Finance invoice 2025, whereas studying the Income Tax Bill, 2025. There is, subsequently, no change within the scope of ‘virtual digital asset’ beneath the Income Tax Bill, 2025. The definition beneath the Bill incorporates the modification already proposed beneath the Finance Bill, 2025.
30. Which Chapters of the Income tax Act, 1961 have seen giant discount of phrases, because of the simplification train?
As famous above, the entire phrases within the new Income Tax Bill, 2025 are round 2.6 lakhs, as in opposition to 5.12 lakh phrases within the Income Tax Act, 1961. Some of the Chapters the place substantial discount of phrases have been achieved are as given beneath:
Reduction of phrases
