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The Indian Parliament is currently reviewing a new Income Tax Bill, aiming to replace the existing 1961 Act with a more streamlined 2025 version. This significant piece of legislation, encompassing 622 pages, 23 chapters, and 16 schedules, represents a considerable restructuring of the nation's tax code. The bill’s projected implementation date is April 1, 2026, meaning that tax computations and reporting for the fiscal years 2024-25 and 2025-26 will still operate under the current legal framework. The proposed changes are substantial, reducing the number of chapters from 51 to 23 while simultaneously increasing the number of sections from 298 to 536. This apparent paradox reflects a shift towards consolidation and simplification. The word count has been drastically reduced by half, from 520,000 words to approximately 260,000, making the bill significantly more concise and accessible.
One of the most significant aspects of the new bill is its focus on improved clarity and readability. This is achieved through several key strategies. Firstly, the bill introduces simpler terminology, replacing complex terms like “assessment year” and “previous year” with the more straightforward “tax year” and “financial year.” This change aligns India’s tax terminology more closely with international standards, thereby enhancing understanding for both domestic and international taxpayers. Secondly, the bill removes verbose explanations and provisos that often complicated interpretation and added unnecessary layers of complexity. By eliminating these, the bill reduces ambiguity and makes it easier for taxpayers to understand the provisions without extensive cross-referencing.
The bill also streamlines the presentation of information. Cross-references to other sections and rules have been minimized, empowering taxpayers to understand individual provisions without needing to consult multiple clauses. This enhances efficiency and transparency, making tax compliance less burdensome. The introduction of a Taxpayer’s Charter further strengthens the bill's commitment to improving the taxpayer experience. This charter is expected to outline rights and responsibilities, enhancing accountability and trust between taxpayers and the tax authorities. In addition to streamlining the structure and language, the bill strengthens digital compliance measures. This underscores a commitment to modernizing the tax system and leveraging technology to improve efficiency and transparency in tax administration.
Despite the structural changes, the new bill retains several key aspects of the existing tax system. Existing tax rates for individuals, corporations, and capital gains remain unchanged, maintaining continuity and predictability for taxpayers. Virtual digital assets are included under the definition of “property,” with taxation remaining at the current 30% rate. The bill also clarifies several areas that were previously ambiguous, including revenue recognition for service contracts, mark-to-market (MTM) loss provisions, and inventory valuation. These areas were previously covered under the Income Computation and Disclosure Standards (ICDS), which often proved confusing and difficult to navigate. The bill consolidates deductions for salaries, including the standard deduction, gratuity, and leave encashment, into a single section, thereby reducing complexity and improving clarity.
Further improvements in clarity are achieved through the consolidation of income categories and the use of formula-based approaches. Income categories that do not contribute to total income are now clearly placed in schedules. A formula-based approach replaces verbose definitions, a significant change exemplified by the revision of the Written-Down Value (WDV) calculation for assets. TDS provisions are reorganized under a single clause and presented in tabular formats for enhanced clarity. This makes it significantly easier for taxpayers and tax professionals to understand and apply these crucial provisions. Furthermore, the bill enhances penalties for misreporting, non-compliance, and incorrect disclosures, strengthening enforcement and deterring non-compliance.
Expert opinions on the new bill have been largely positive, emphasizing the simplification of tax laws while acknowledging the lack of major policy changes. Sandeep Jhunjhunwala of Nangia Andersen LLP highlights the focus on structural clarity rather than transformational reforms. Amit Maheshwari of AKM Global notes the elimination of redundant references and outdated clauses, praising the simplification of language and the tabular format of TDS, presumptive taxation, and assessment time limits. Munjal Almoula of BDO India emphasizes that the bill doesn't introduce new tax burdens, focusing instead on simplifying compliance and removing redundant provisions. Rohinton Sidhwa of Deloitte India views the reform as a step towards modernization, creating a more accessible tax system. Gouri Puri of Shardul Amarchand Mangaldas & Co. highlights the shift to the term “tax year,” aligning with global practices and simplifying readability.
Source: New Income Tax Bill: How is the new tax law different from the old one