Introduction

The Income-Tax Bill 2025 was introduced in the Lok Sabha on 13 February 2025 to replace the long-standing Income-Tax Act, 1961. Unlike previous attempts at tax reform, this Bill does not propose radical changes but focuses on simplification, ease of interpretation, and reduction in litigation. The restructured Bill eliminates redundant provisions and modernizes language, making it significantly more concise and user-friendly.

Why Was a New Income-Tax Bill Needed?

The Income-Tax Act, 1961, had undergone nearly 4,000 amendments over the years, resulting in a complex and bulky framework. Multiple provisions, sub-sections, and provisos led to confusion among taxpayers, tax administrators, and professionals. Some key reasons for replacing the old Act include:

Bulky and Complex Structure: The excessive amendments made it difficult to read, interpret, and apply the law.

Redundant Provisions: Several provisions had expired or become irrelevant due to sunset clauses but remained in the Act.

Increased Litigation: Conflicting interpretations led to a rise in tax-related disputes.

Multiple Cross-References: Taxpayers and professionals had to refer to scattered sections, making compliance cumbersome.

Global Alignment: India aims to simplify its tax laws in line with international best practices and tax treaties.

Key Improvements in the Income-Tax Bill 2025

The new Bill is designed to be more structured, concise, and transparent. Some of the major improvements include:

1. Simplified and Streamlined Provisions

The number of chapters has been reduced from 47 to 23.

The number of sections has been brought down from 819 to 536.

Provisos (previously over 1,200) and explanations (over 900) have been eliminated.

Alpha-numeric section numbering (e.g., 80C, 80CCF) has been removed.

2. Elimination of Redundant Sections

More than 125 obsolete sections have been removed.

Definitions from other laws have been embedded to reduce cross-referencing.

3. Better Presentation and Clarity

Key provisions, such as Tax Deducted at Source (TDS) and Tax Collected at Source (TCS), are now presented in tabular format, improving readability.

Ambiguous language has been replaced with contemporary terminology (e.g., “tax year” instead of “previous year”).

4. Retention of Tested and Settled Principles

Unlike previous attempts in 2009 and 2019, the Bill does not introduce new tax rates or structural tax reforms.

Key concepts and definitions that are well understood by professionals remain unchanged.

Will There Be Another Major Overhaul of Income-Tax Laws?

While the Income-Tax Bill 2025 is a structural revamp, the government has opted for incremental changes rather than a complete overhaul. Some of the tax reforms proposed in the Draft Direct Taxes Code (DTC) of 2009 have already been implemented over the years, such as:

Lowering of corporate tax rates to 25%.

Simplification of personal tax slabs under the new tax regime.

Future tax changes, including global minimum tax rates, are expected to be implemented gradually as part of international agreements rather than through a single, large-scale overhaul.

Challenges in Implementing the New Income-Tax Act by April 2026

While the Bill is expected to be passed before the end of the financial year, several logistical challenges may delay its implementation:

Updating Tax Rules and Regulations: The Central Board of Direct Taxes (CBDT) needs to revise and update hundreds of rules to align with the new Act.

IT Infrastructure Updates: The Income Tax Department must modify its digital systems to accommodate the new structure.

Enterprise Resource Planning (ERP) System Upgrades: Corporate and individual taxpayers, tax advisors, and filing platforms will need to update their software to comply with the new provisions.

Conclusion

The Income-Tax Bill 2025 is a much-needed step towards simplifying India’s tax laws, reducing litigation, and making tax compliance easier. While it does not introduce radical reforms, its structural clarity, elimination of redundant provisions, and improved presentation mark a significant improvement over the Income-Tax Act, 1961. If implemented smoothly, it will benefit taxpayers, professionals, and administrators alike, fostering better compliance and reducing disputes.

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By Team Atharva Examwise