Economy
What to expect from the new income tax law: Simplicity, tax certainty, reduced litigation
Summary
The government plans to replace the 1961 law, aiming for clearer regulations and reduced compliance costs for taxpayers. The bill is part of broader reforms and seeks to simplify tax administration without altering existing tax rates.
New Delhi: The government is set to introduce the Income Tax Bill, 2025, in parliament on Thursday, seeking to replace a six-decade-old law with a crisper and shorter statute. Mint looks at what to expect from the bill and what it means for taxpayers and investors.
Signal from the government
The new Income Tax Bill is a key element of the set of reforms announced in finance minister Nirmala Sitharaman’s budget speech this year. It is in addition to reforms planned for the power sector, urban development, mining, the financial sector and the regulatory framework.
Tabling the bill in the current session of parliament signals the government’s intent to make a “soft touch" regulatory framework. According to Sitharaman, the new statute will be simple to understand for taxpayers and the administration, leading to tax certainty and reduced litigation.
The new bill sets in motion the reforms that the Modi administration believes will improve the business climate and foster investments.
What the bill proposes
The bill aims to consolidate and amend the law related to income tax. It acknowledges that the existing law, passed in 1961, has been subject to numerous amendments that have overburdened its basic structure.
As a result, its language has become complex, and it has increased the cost of compliance for taxpayers while hampering the direct tax administration’s efficiency. The bill seeks to make the law concise, lucid, easy to read and understand. However, it does not propose changes to the established concepts of taxation of income or tax rates.
What happens next
The bill, once tabled, is expected to be referred to a parliamentary committee. The panel will deliberate on the bill, seek public feedback if it desires and make its recommendations in a report to be tabled in parliament.
While the recommendations of parliamentary committees carry weight, the administrative ministry has the flexibility to decide which suggestions to incorporate in the bill.
It is also possible that the government may go in for another round of public consultation, although the bill in its current form has taken into account suggestions from the public.
What happens to ongoing tax disputes?
Tax disputes arising from the existing law will make their way through the administrative appeal system and the courts even after the new statute comes into force.
Only transactions and income arising after the new law comes into effect will be guided by that law. Usually, when new legislation replaces an old one, transitional provisions are provided where necessary.
When will the new law become effective?
It remains to be seen when the bill receives parliamentary approval.
The government intends to implement the new law from 1 April 2026. This would mean that income earned in FY25 and FY26 will be governed by the existing law.
