Income Tax Bill 2025 to simplify and modernize India’s tax system
Income Tax Bill 2025 is aimed at simplifying and modernizing India’s tax system without making significant changes to the existing I-T Act.
The existing law will continue to govern proceedings for years preceding tax year 2026-27. (Image: Freepik)
Finance Minister Nirmala Sitharaman tabled the Income Tax Bill 2025 in Parliament on February 13, which is aimed at simplifying and modernizing India’s tax system without making significant changes to the existing I-T Act.
The government will seek feedback before finalizing it and the new law is expected to apply from the tax year starting April 1, 2026. “Once approved by the President, the government will update tax rules, forms and IT systems accordingly. Businesses will also need to update their systems at the same time. Overall, this marks a transition towards a more modern tax system for both taxpayers and the administration,” said Sanjay Tolia, Partner, Price Waterhouse & Co LLP.
The simplification exercise was guided by three core principles:
* Textual and structural simplification for improved clarity and coherence.
* No major tax policy changes to ensure continuity and certainty.
* No modifications of tax rates, preserving predictability for taxpayers.
A three-pronged approach was adopted:
* Eliminating intricate language to enhance readability.
* Removing redundant and repetitive provisions for better navigation.
* Reorganizing sections logically to facilitate ease of reference.
The review has led to a substantial reduction in the Act’s volume, making it more streamlined and navigable. Key reductions are summarized below:
Commenting on the new Tax Bill, Sunil Badala, Head of Tax, KPMG in India, said the Income-Tax Bill, 2025, largely aligns with the existing provisions of the Income-tax Act, 1961. At first glance, it aims to simplify the legislation by consolidating similar provisions, eliminating obsolete sections, and presenting some information in a tabular format. This approach has reduced the word count by 45 percent and decreased the number of sections from over 800 (counting alphanumeric sections like Section 115A through Section 115WM individually) to 536 sections.
Other notable changes include the adoption of terms like “tax year” instead of “previous year,” the elimination of the assessment year concept, rephrasing “explanations” and “proviso” as sub-sections and breaking long sentences into shorter clauses to improve readability and implementation. “The Bill continues to reference certain definitions from the Income-tax Act, 1961, and there are many cross-references between tables, which could make the reading slight cumbersome,” he added.
Shaily Gupta, Partner at Khaitan & Co, said the Income-Tax Bill, 2025, represents a significant modernization of India’s tax regime, proposed to be effective from the tax year 2026-27. It reworks the existing Income-tax Act, 1961, by removing provisos and explanations, consolidating TDS provisions into a single clause, extensive use of tables for better readability, and removing redundant sections.
“This restructuring transforms 298 sections (effectively 819 sections) into 536 clauses, thereby enhancing clarity. Major tax concepts such as indirect transfers, GAAR, capital gains, SEP, taxation of royalty/ FTS, tax rates and residential status remain largely unchanged. The new Bill also incorporates amendments proposed by Budget 2025,” Gupta said.
The existing law will continue to govern proceedings for years preceding tax year 2026-27, and pending proceedings before appellate forums and courts will be disposed of in accordance with the existing law.
The new Bill maintains the base of the existing Act, ensuring continuity and familiarity for taxpayers and practitioners, while aiming to improve clarity and streamline tax processes.
Naveen Wadhwa, Vice President, Taxmann, said the Income Tax Bill (ITB) tabled in the Parliament will replace the 65-year-old Income Tax Act of 1961 (ITA) and become a new Income Tax Act of 2025. However, it will apply from 1st April 2026. The ITB contains 2.56 lakh words, almost 50% fewer than the half a million words in the ITA. Despite the significant reduction in the legislation’s size, the essence has been retained.
The ITB is a remarkable departure from the 1961 Act, which respects the legacy of the 1961 Act. The ITB simplifies the structure, removes the redundant and omitted provisions of ITA, and replaces the Provisos and Explanations of ITA with sub-sections, clauses, or sub-clauses.
“The ITB provides interesting facts compared to the ITA. The 911 sections and 11 schedules of the ITA are restructured into 536 Clause (Sections) and 16 schedules in the ITB. The ITB eliminates more than 300 provisions of the ITA that have become redundant or were omitted over time. The provisions included within 1,200+ Provisos and 550+ Explanations of the ITA are presented as sub-sections, clauses, or sub-clauses in the ITB. The entire ITB does not contain a single Proviso or an Explanation. Section 2 of the ITB includes 112 clauses that explain all important definitions in one place, which were defined in the relevant provisions of the ITA. The words “Previous Year” and “Assessment Year” now rest in peace and are reincarnated as “Tax Year”,” Wadhwa added.
The legacy of the ITA, with structural adjustments, has been retained in the ITB to prevent unsettling the ITA, which has gained certainty after more than thousands of amendments through 80+ Finance and Amendments Acts. However, the provisions for the taxation of charitable trusts, amended by more than 20 Finance Acts since 1961, have found a successor, a new name, and a dedicated chapter. Chapter XVII-B encompasses all provisions related to non-profit organisations in one place, including registration, computation, accreted tax, and more.
