New I-T Bill: Sidestepping Parliament or simplifying taxpayers’ lives?

A ‘crispier and simplified’ Income Tax Bill 2025 — having 536 sections and 23 chapters, running into 622 pages — is likely to be introduced in the Lok Sabha on Thursday, 13 February, reports PTI.

The new I-T Bill is meant to replace the Income Tax Act of 1961, after six decades. Proponents of the new legislation say the old one has become too unwieldy over the years, with bulky and complex amendments — hence the fresh and crisp 622 pages.

The I-T Bill 2025 comprises 536 sections — rather more than the 298 sections of the current Income Tax Act, 1961. The existing law has 14 schedules, which will increase to 16 in the new legislation. (The number of chapters remains the same at 23.)

So, what is being set aside in its simplified legislation?

1. The proposed law replaces the term 'previous year' as mentioned in the Income Tax Act, 1961, with the term 'tax year'. Also, the concept of assessment year has been done away with. Well and good.

Currently, for income earned in the previous year (say 2023–24), tax is paid in the assessment year (in this case 2024–25). So now, with the ‘previous year’ and ‘assessment year’ concepts removed, we would speak of 2023–24 as the ‘tax year’, per the new Bill.

2. It also adds ‘clearer’ tax treatment for stock options (ESOPs) to purportedly reduce tax disputes and includes judicial pronouncements from the last 60 years for greater clarity.

3. And then there’s the matter of deleting Parliament for part of the I-T department’s SOP... or at least, the Central Board of Direct Taxes’ SOP.

PTI cites AMRG & Associates senior partner Rajat Mohan as saying, "A key departure from the Income-Tax Act, 1961, is that previously, the income tax department had to approach Parliament for various procedural matters, tax schemes and compliance frameworks. Now, CBDT has been empowered to introduce such schemes independently, significantly reducing bureaucratic delays and making tax governance more dynamic."

So per the new law, the CBDT is to be empowered to frame tax administration rules, introduce new compliance measures and enforce digital tax monitoring systems — without requiring legislative amendments, according to clause 533.

"The increase in sections," Mohan adds, "reflects a more structured approach to tax administration, incorporating modern compliance mechanisms, digital governance and streamlined provisions for businesses and individuals."

But back to the changes...

4. The Bill also identifies a category of ‘virtual digital assets’ under ‘undisclosed income’ (which currently only covers items such as money, bullion and jewellery), as well as ‘crypto assets’.

Crypto traders and investors will need to comply with stricter taxation and reporting requirements per the new Bill, which has reinstated a flat 30 per cent tax on income from virtual digital assets — crypto, NFTs (such as blockchain tokens), etc. It does not provide for any deductions or exemptions for these, apart from the cost of their acquisition​. It also proposes a 1 per cent TDS on crypto transactions.

6. Fringe benefits tax is one of the items that disappears in the new Bill.

In terms of real logistical changes ahead, the new Bill will require a lot of the forms for tax reporting and auditing to be drawn up afresh to align with the table structures and formulae it incorporates.

In addition, critics have pointed out that there are no new dispute resolution mechanisms outlined — as such, the contentious issues here remain unless feedback from stakeholders or parliamentarians is used to significantly change the bill after it is presented to Parliament.

While the bill was slated to be shorter, almost half the size of the current Act, by the finance minister in her speech — “The new Bill will be clear and direct in text with close to half of the present law, in terms of both chapters and words,” she had said — it is still the same number of chapters.

Finance minister Sitharaman has also said the new Bill takes a 'decriminalised' approach to tax penalties — which is not very clear, since she is also cited by the Mint newspaper as saying, 'Even now, the Income Tax [department] does not arrest you and take you anywhere.'

Who dictated these changes?

Sitharaman had first announced a comprehensive review of the Income-tax Act, 1961, in her July 2024 Budget.

Following the announcement, an internal committee was set up within the CBDT to review the bill, purportedly aimed to make it concise, clear and easy to understand. The stated purpose included reducing tax disputes and litigation.

In addition, 22 specialised sub-committees were established to review various aspects of the income tax legislation.

Public inputs and suggestions were invited under four categories: simplification of language, litigation reduction, compliance reduction and redundant or obsolete provisions.

The income tax department says it received 6,500 suggestions from various stakeholders on the old Income Tax Act; it is unknown what percentage of these were incorporated.

This wasn't the NDA government's first shot at updating the I-T Act, since a 2018 taskforce had submitted its report in 2019.

Even prior to the Modi governments, however, the UPA (I) government under Dr Manmohan Singh had put forth the Direct Taxes Code (DTC) in 2009 and tabled the draft Bill in Parliament in 2010. It was then revised twice by a standing committee tasked with its review, in 2012 and 2014 — at which point the exercise came to a halt and was buried for several years when the government changed.

How long before it becomes an Act?

Sitharaman had announced when sharing the Union Budget of 2025–26 that the new tax Bill would be introduced during this ongoing session of Parliament. After its introduction in Parliament, the Bill is likely to be sent to a parliamentary standing committee for scrutiny. If passed, the new law is expected to come into effect from 1 April 2026.

However, given the fate of the UPA's Direct Taxes Code, it will be interesting (to say the least) to see if the parliamentary standing committee is able to resolve and push through this new legislation that fast.

Indeed, more than one income tax expert has spoken of a need to clearly define the roles and limits of bureaucratic functions as related to income tax, removing certain ‘discretionary powers’ currently exercised to prevent arbitrary querying and interpretations that serve to harass the taxpayer.

Whether this comes to fruition — and whether it curtails the use of Central agencies to go after political opposition and critics in the media or civil society — remains to be seen.

As for the common taxpayers, they are likely to be happy enough even if the new Bill only means lower penalties, higher tax deductions on life and health insurance, and simplified residence rules (NRI/Indian resident).