In a watershed moment in tax reform, the Union Cabinet has approved a new Income Tax Bill that is planned to replace the existing Income Tax Act of 1961.
The new law aims at simplifying the direct tax regime and making it more understandable for taxpayers, as well as to minimize litigation.
The bill is likely to be introduced in Parliament next week and would go on to be referred to the Standing Committee on Finance for deliberations.
Objectives of the New Bill
The new Income Tax Bill wants to establish a simple property tax law. Finance Minister Nirmala Sitharaman underscored that the bill aims at removing complicated provisions with lengthy explanations and convoluted legacies that have always led to ambiguities and disputes.
In streamlining the tax code, the government wants to provide better clarity and certainty for taxpayers, minimize the scope for legal challenges, and promote compliance.
Development and Background
In her budget speech for July 2024, Finance Minister Sitharaman first made an announcement on the need to reform the Income Tax Act of 1961. She had noted the necessity for a holistic review in order to align or synchronize the tax laws with the contemporary economic reality, as well as make compliance simpler for taxpayers.
Following the minister’s pronouncement, the Central Board of Direct Taxes (CBDT) set up an internal committee to draft the new legislation.
The committee included tax experts as well as legal professionals, and it was assigned the responsibility of reviewing existing provisions and formulating proposals to streamline the law in a highly concise manner and increase ease of use.
Main Features of the Proposed Law
While the complete text of the new Income Tax Bill will avail itself upon introduction in Parliament, key features are likely to include: Most importantly, the reform bill intends to employ simple language, free of the usual legal jargon, and technical terminologies, making it easily readable by the layman.
“Streamlining of Provisions” talks of the removal of redundant and obsolete provisions and amalgamation with other related clauses, thereby reducing almost 50% of the existing length of the act.There have been serious disputes and controversies related to the untamed interpretation of certain provisions in the Finance Bill.
This bill, on the contrary, provides for clear definitions so that minimal interpretational issues arise. No New Tax Burden: Finance Secretary Tuhin Kanta Pandey has clarified that the new bill is not going to impose any further taxes or increase the existing tax burden on individuals and businesses.
Recent Tax Announcements and Changes The approval of the new Income Tax Bill is in conjunction with other major changes in tax announcements given in the Union Budget of 2025-26.
This includes the government raising the income limit above which income tax is not charged from ₹12 lakh a year in the new tax regime. This measure is surely going to be a major relief for the middle class, increasing their disposable incomes and economic activities.
The budget also recommended changes in tax slabs and rates so that the sharing of benefits becomes more extensive, with a view to increasing household consumption, savings, and investment.With Cabinet’s approval, the new Income Tax Bill shall be introduced in Parliament during the ongoing budget session.
Post-introduction, it’s anticipated that the bill will be taken up by the Standing Committee on Finance, which will examine it in detail and recommend accordingly. The new law is scheduled to get enacted by the coming fiscal year, marking a crucial milestone in the history of tax reforms in India.
The proposed Income Tax Bill reflects the concerted effort of the government to modernize and simplify the existing tax laws in India. It seeks to dispose of the Income Tax Act of 1961, which is of six decades old, while simultaneously bringing about increased clarity and compliance, which can in turn lead to the reduction in disputes and would eventually lead to the establishment of a more taxpayer-friendly tax scheme.
The passage of the bill through the law-making will be something of great interest to stakeholders.
