MUMBAI: The New Income Tax Bill 2025, which will replace the 1961 Act, is an attempt at simplifying the tax rules. While the Bill is shorter and crispier, the language has been simplified.
The Bill has nearly halved the sections (819 to 536), and the number of chapters to 23 from 47. In terms of word count, the reduction is nearly 50% to 2.6 lakh words from 5.12 lakh running into 622 pages, down from 1,647 pages. Another key change is doing away with the 1,200 provisos and the 900 explanations - each change in taxation laws have been passed by Parliament and become part of existing Act - in the new Bill presented in the Lower House on Thursday. Here are some of the important changes/mentions that may affect the common taxpayers:
Salaried class
The new Bill consolidates all salary-related provisions into one place for easier understanding, so taxpayers no longer have to refer to separate chapters while filing. Deductions earlier allowed under Section 10, which deals with gratuity, leave encashment, commutation of pension, compensation for VRS and retrenchment compensation, are included in the salary chapter.
Some allowances like HRA are listed in Schedule II of the Bill, referenced in salary provisions. The goal is to improve readability by including tables and formulas. While taxability of perks remains in the Bill, valuation, conditions and exceptions are moved to Rules section as they don’t apply to every taxpayer.
Simplifies income definition
The Bill simplifies the definition of incomes to be taxed as salary. Any income earned by a taxpayer is taxed under different heads now but in new Bill, there are five heads of income, including salary. Other heads are income from house property, profits and gains of business or profession, capital gains and income from other sources.
The list of income to be considered as salary in the Bill are wages, annuity or pension, gratuity, fees or commission, perquisites, profit in lieu of, or in addition to, any salary or wages, advance salary, leave encashment, contribution to provident fund beyond tax-free limit, contribution by central government or other employer to employee’s pension scheme accounts. Salary, bonus, commission or remuneration due to, or received by, a partner of a firm from the firm will not be considered for tax calculation under head “salary”.
TDS & TCS
Tax deducted at source (TDS) and tax collected at source (TCS) provisions are made easier to comprehend by providing tables.