While presenting the Union Budget 2025-26 on February 1, 2025, Finance Minister Nirmala Sitharaman announced that the new Income Tax Bill 2025 would be introduced soon. The Bill aims to simplify tax laws, reduce litigation, and make the language clearer for both taxpayers and administrators. Once passed, it will replace the Income Tax Act, 1961, and will take effect from April 1, 2026.
Here are the key expected changes:
1. Introduction of ‘Tax Year’ Instead of Assessment Year
Currently, the term Assessment Year (AY) often confuses taxpayers. The new Bill may introduce a ‘Tax Year’, aligning with international standards. This would eliminate unnecessary jargon and make tax filing more straightforward. However, the Financial Year (April 1 – March 31) will remain unchanged.
2. Revised Sections for Better Clarity
The new Bill is expected to have 536 sections across 23 chapters, compared to 298 sections in the current Act. Although the number of sections increases, the overall length of the law will be reduced, and the language simplified to improve clarity.
3. Simplified Tax Compliance and Deductions
Tax deductions and exemptions, which are currently scattered across different sections, will be consolidated into a single section. This will make it easier for salaried individuals to understand benefits like standard deductions, leave encashment, and gratuity.
4. Change in Tax Treatment of Partner’s Salary
Under the current law, the salary received by a partner from a firm is taxed under Income from Salary. The new Bill removes this classification, meaning partners’ earnings will no longer be treated as salary but as business income.
5. TDS Rules Consolidated for Ease of Compliance
To streamline tax compliance, all Tax Deducted at Source (TDS) provisions will be grouped under a single section with easy-to-read tables. This will make it easier for businesses and taxpayers to understand and comply with TDS rules.
6. Mandatory Tax Payment Despite Pending Appeals
If a taxpayer has a pending appeal in the High Court or Supreme Court, it will no longer be a valid reason to delay tax payments. The new Bill states that taxes must still be paid as per the assessment, even if a case is under appeal.
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What Has Not Changed?
- Residency Rules: The classification of Ordinary Resident (OR), Non-Ordinary Resident (NOR), and Non-Resident (NR) remains unchanged.
- Financial Year: The financial year will still run from April 1 to March 31.
- Income Tax Slabs & Capital Gains: No further changes have been made beyond the adjustments in July 2024 and Budget 2025-26.
- ITR Filing Deadline: The due dates for Income Tax Return (ITR) filing remain the same.
Final Thoughts
Despite the government’s promise to simplify income tax laws, the new Bill appears to be more about restructuring rather than introducing major changes. While the consolidation of sections and clearer language will help taxpayers, the core structure of the tax system remains largely the same. It’s a step toward clarity, but perhaps not the transformation many expected.