The Income-Tax Bill, 2025, which is likely to be introduced in the Parliament on Thursday (13/02), rolls out key changes such as simplified language, a clearer definition of income, and the removal of outdated provisions. The Bill, which is 622 pages long, defines "tax year" as the 12-month period starting from April 1, replacing the old concept of "assessment year."
The Bill, which maintains the structure of the previous tax regime with no major changes to penalties or compliance requirements, is expected to take effect from April 1, 2026.
The new income tax Bill includes virtual digital assets as part of property, categorising them as capital assets along with land, buildings, shares, securities, bullion, jewellery, and artwork. It also presents several provisions, such as tax deductions, presumptive taxation rates, and assessment time limits, in a tabular format for better clarity. Notably, the section on Dispute Resolution Panel (DRP) now clearly outlines decision-making criteria, improving transparency.
It has also removed outdated exemptions like Section 54E, which provided capital gains exemptions on assets transferred before 1992. It retains the old tax regime alongside the new one, ensuring continuity.
The new concept of "tax year" means income tax will be assessed based on economic activity and income earned during that year, instead of the previous system, where tax was assessed in the following financial year. This change could pave the way for a more flexible tax reporting system in the future.
The Bill is 201 pages shorter than the current Income-Tax Act (823 pages), with a reduction in redundant clauses and provisions. Despite the length reduction, the new Bill contains more clauses (536) than the existing Act (298), and the number of schedules has increased from 14 to 16. The simplified language, removal of cross-references, and consolidation of sections make the provisions more accessible to taxpayers. Experts believe this will reduce confusion and make compliance easier.
Additionally, income not forming part of total income has been moved to schedules, and deductions from salaries are now listed in one place. This restructuring simplifies the tax code, making it more understandable. The Bill was cleared by the Cabinet last Friday. Following the introduction of the Bill in the Parliament tomorrow it will be reviewed by a parliamentary committee before any final decisions on amendments are made.
The government had previously sought public input on the simplification of the tax law, receiving around 6,500 suggestions. While the new legislation aims to address long-standing complexities, this is not the first attempt to simplify the Income-Tax Act. A task force was formed in 2018 to draft a new law, and earlier drafts such as the Direct Taxes Code (DTC) were introduced but eventually lapsed.