Finance Minister Nirmala Sitharaman on Thursday tabled the Income Tax Bill 2025 in the Lok Sabha, a crispier version of the six-decades-old current principal law, with “substantial changes” aimed at simplifying the provisions. The draft law will be referred to a select committee, whose composition the speaker will decide. The panel would review the Bill and submit its report to Parliament by the first day of the next session, the minister said.
Earlier, some of the Opposition parties had objected to the introduction of the Bill.
Tax experts commended the language of the Bill that is “easier to understand” and re-grouping of some of the sections for easy reference. However, there no change has been proposed in tax rates or key tax provisions like residency rules, capital gains taxation, general anti-avoidance rules, transfer pricing, TDS/TCS rates etc.
“…substantial changes have been made, the number of words have come down by half. It’s in plane simple English,” said the FM.
Pertinently, the proposed law, which will be effective once passed by Parliament, from April 1, 2026, seeks to replaces the term “previous year” as mentioned in the extant law with “tax year” that is aligned with the financial year (April-March). The concept of assessment year has been done away with.
Further, all sections related to tax deducted at source (TDS) have been combined under a single clause, and retained a Charter that seeks to buttress taxpayers’ rights.
The Bill was announced in the ministers’ speech outlining Budget FY26 on February 1 and was approved by the Union Cabinet on February 7.
According to FAQs issued by the Central Board of Direct Taxes on Thursday, there are “no changes” related to rates in the new Bill. Since there have been regular amendments to the I-T Act, 1961 including amendments proposed in Finance Bill, 2025, the Act stands updated from policy perspective, the CBDT added. “Therefore, while no major policy related changes have been made in the Bill, the above aspects have led to proposed ‘material’ changes in the existing law,” said the CBDT.
In the new Bill, redundant provisions of the existing Act have been removed; sub-sections and clauses have been used, instead of relying on provisos and explanations for exceptions and carve-outs; and a simplified system for cross referencing of sections, sub-sections, clauses etc. has been used.
Additionally, the new Bill includes extensive use of tables, formulae for enhanced clarity; and consolidation of provisions scattered across various sections/chapters relating to a single issue, explained the FAQs.
Sanjay Tolia, partner, Price Waterhouse & Co said: “The government will seek feedback before finalising the Bill. Businesses too will need to update their systems. Overall, this marks a transition towards a more modern tax system for both taxpayers and the administration.”
The 2025 Bill contains 23 chapters as against 47 in the 1961 Act; 536 provisions as compared to 819; and 260,000 words as opposed to 512,000 words. “Despite the significant reduction in the legislation’s size, the essence (of the law) has been retained,” noted Naveen Wadhwa, vice president, Taxmann.
The TDS and TCS provisions have been made easier to comprehend by providing tables. There are separate tables for payment to residents and non-residents, and where no deduction at source is required, the FAQs said. Experts said that ambiguities in tax laws often lead to disputes and litigation arising out of aggressive interpretation both from the tax administration and the taxpayers. “The department should issue prompt clarifications and circulars to address concerns raised by stakeholders, fostering trust and transparency,” said Sandeep Bhalla, Partner, Dhruva Advisors.
Moreover, in the Bill, all the provisions pertaining to salary have been consolidated at one place for ease of understanding so that the taxpayer does not have to refer to separate chapters for filing his return of income.
The deductions which were earlier allowed under section 10 of the Income Tax Act,1961, like gratuity, leave encashment, commutation of pension, compensation on VRS and retrenchment compensation, are now part of the salary chapter itself. Some of the allowances like HRA are now provided in Schedule II of the new Bill that finds reference in the provisions relating to salary.