10 Key Takeaways from the New Income Tax Bill for Taxpayers
The government has tabled the new Income Tax Bill in Parliament, aiming to simplify the existing Income Tax Act of 1961. Over the years, the Act has undergone amendments through 66 Budgets (including two interim budgets), making it complex for the average taxpayer. The new bill seeks to streamline tax laws, reduce litigation, and enhance clarity. However, questions remain on whether it will truly make tax compliance easier. Here are the ten most crucial aspects of the new Income Tax Bill, 2025, that will impact taxpayers:
1. Introduction of the Tax Year
A significant change in the new bill is the introduction of the "tax year" concept, replacing the current distinction between the assessment year and the previous year. This move aims to eliminate confusion among taxpayers who often struggle to differentiate between the financial year and the assessment year when filing their returns. A unified tax year is expected to simplify tax compliance.
2. No Change in the Financial Year
Despite the introduction of the tax year, the financial year structure remains unchanged. It will continue to run from April 1 to March 31. The government has chosen not to align the tax year with the calendar year.
3. Renumbering of Sections
A major structural overhaul has been introduced, with section numbers being reorganised. For example, income tax return (ITR) filing, previously covered under Section 139, will now be listed under Section 263. Similarly, the new tax regime, currently under Section 115BAC, will move to Section 202. This restructuring aims to enhance readability and logical arrangement of provisions.
4. No Change in Residency Laws
The bill does not alter existing residency laws. The three-tier classification of individuals as ordinarily resident, non-ordinarily resident, and non-resident remains intact. While tax experts have long advocated for changes, especially regarding the ten-year look-back period for determining residency, the new bill retains the current provisions.
5. A More Comprehensive Tax Framework
The revised bill significantly expands the structure of tax laws. It now consists of 23 chapters, 536 sections, and 16 schedules, spanning over 600 pages. In contrast, the existing Income Tax Act comprises 298 sections and 14 schedules. The expanded structure incorporates modern compliance mechanisms, digital governance, and streamlined provisions for both individuals and businesses.
6. Simplified Interpretation and Computation
To enhance clarity, the bill removes complex explanations and provisos. The new framework consolidates deductions under a single category, listing standard deductions, gratuity, and leave encashment benefits in one place rather than scattering them across multiple sections. Business taxpayers will benefit from a formula-based approach to depreciation computation, simplifying calculations.
7. Streamlined TDS Compliance with Potential Challenges
All tax deducted at source (TDS) provisions have been consolidated into a single section, accompanied by simplified tables for easier understanding. However, tax professionals caution that this change will require extensive updates to tax reporting forms and utilities, posing potential challenges during implementation.
8. No Changes to ITR Deadlines, Tax Slabs, and Capital Gains Rules
To ensure consistency and predictability, the new bill does not alter existing income tax return deadlines, tax slabs, or capital gains taxation. These aspects remain unchanged from Budget 2025, providing taxpayers with continuity in their financial planning.
9. Retention of Income Heads with Removal of Redundant Provisions
The bill retains the five existing heads of income—salary, house property, business income, capital gains, and other sources. However, it eliminates 300 obsolete provisions from the current Act, removing rules that have become redundant over time.
10. Implementation Timeline
The new tax law is expected to come into effect from April 1, 2026 (FY 2026-27). Until then, taxpayers will continue filing under the existing Income Tax Act for financial years ending March 2025 and March 2026. This transition period allows ample time for businesses and individuals to adapt to the changes.
With these key takeaways, taxpayers can begin preparing for the changes that lie ahead, ensuring smoother compliance with the evolving tax framework.
With inputs from agencies
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