The long-awaited Income Tax Bill, 2025 was finally tabled in the Lok Sabha, ending decades of hand-wringing. Following legislative process, it will likely take effect from April 2026, replacing the Income Tax Act of 1961. While the contents of the draft bill will unravel over time, preliminary assessments indicate that it makes an honest attempt to simplify India’s direct taxes framework, eliminate ambiguity and enhance clarity. At the outset, it reduced the number of chapters and sections while retaining the existing tax rates, reorganised major tax exemptions to reduce complexity and made compliance transparent. It also simplified the legislation by consolidating provisions and eliminating obsolete sections, while the strategic use of presenting information in a tabular format is noteworthy. Besides, adopting terms like tax year against assessment year, rephrasing explanations and provisions as sub-sections and breaking long sentences into shorter clauses will help improve readability and implementation.
Even though the bill makes tremendous efforts to simplify the jargon, it doesn’t introduce sweeping structural shifts or defining changes to the existing provisions, computation methods or assessment procedures. Moreover, the draft bill continues to reference certain definitions from the Income Tax Act of 1961 and, at times, even includes cross-references between tables, much like the existing Act. This cross-referencing between sections and rules and the overlapping nature of provisions led to complexity in the first place, eventually leading to the breakdown of trust between the tax administration and taxpayers. In other words, the proposed bill is not scripted from scratch but relies heavily on the core structure of the age-old Income Tax Act 1961. However, by focusing largely on jargon that led to misinterpretation of provisions and needlessly leading to litigation, the government hopes to reduce legal disputes and encourage voluntary tax compliance.
While the draft bill cuts the mustard with regards to simplification of the tax laws, by making them transparent, easier to interpret and taxpayer-friendly, the government should follow it up with a necessary next step of redefining complex provisions or assessment procedures, streamlining dispute resolution mechanisms and foster equitable tax policies to ensure its desired impact on the economy. The proposed bill can be a catalyst for growth if it follows the principle of ‘trust first, scrutinise later’ in letter and spirit.