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Updated 17:41 IST, February 3rd 2025

India’s New Income Tax Bill: What We Know So Far & What It Means for You

FM Sitharaman announced the introduction of a new Income Tax Bill in Budget 2025 aims to simplify tax laws, reduce litigation, and enhance transparency.

Reported by: Gunjan Rajput
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 New Income Tax Bill
New Income Tax Bill | Image: Republic

Finance Minister Nirmala Sitharaman , in her Union Budget 2025 speech, unveiled a transformative tax reform—India will introduce a new Income Tax Bill to replace the existing Income Tax Act of 1961. This move aims to make tax laws simpler, more accessible, and less prone to litigation.

"The new bill will carry forward the spirit of 'Nyaya' (justice), ensuring clarity and tax certainty while reducing compliance burdens," Sitharaman stated. She emphasized that the bill will be nearly 50% shorter in terms of chapters and words compared to the current law, eliminating ambiguities and making it easier for both taxpayers and administrators.

‘Trust First, Scrutinize Later’ Approach to Taxation
A key highlight of the reform is the government’s shift towards a ‘trust first, scrutinize later’ approach. Sitharaman reaffirmed the commitment of the tax department to build trust with taxpayers while maintaining robust scrutiny where necessary.

She explained, “I am happy to inform this August House and the country that the new income-tax bill will carry forward the same spirit of “Nyaya”. 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. It will be simple to understand for taxpayers and tax administration, leading to tax certainty and reduced litigation,' FM said

How the New Bill Will Benefit Taxpayers
The streamlined legal language in the proposed bill aims to:

Reduce complexity and improve clarity for individuals and businesses
Minimize litigation by eliminating ambiguous provisions
Enhance tax certainty, making compliance easier
Boost investor confidence by fostering a stable regulatory framework
These measures are expected to create a more predictable tax environment, benefiting businesses, investors, and individual taxpayers.

Expert Reactions: A Landmark Reform
Tax and financial experts have lauded the government's decision, comparing it to the Goods and Services Tax (GST) reform of 2017 in terms of impact.

A Major Step Towards Tax Simplification
Gaurav Makhijani, Head of Tax for North India and Gujarat at Rödl & Partner India, called the move “a landmark development”, stating: “The Finance Minister announced that a new Income Tax Bill will be introduced in Parliament next week, effectively replacing the Income Tax Act, 1961. The foundation for this was laid in last year’s budget, after which a committee reviewed the law and sought public comments. It appears that the new draft is ready for discussion, and we can expect significant deregulation and simplification.”

He also noted that this will be one of India's most significant tax reforms since the introduction of GST.

Boosting Economic Growth and Taxpayer Confidence
Yezdi Nagporewalla, CEO of KPMG in India, emphasized that the bill aligns with India’s vision for economic growth: “The Union Budget 2025 is a visionary and inclusive blueprint for India’s economic ascent, setting the stage for Viksit Bharat, ready to lead in the global arena. The proposed new Income Tax Bill is a much-awaited and landmark move toward a simplified tax regime, fostering an environment of growth and innovation.”

Nagporewalla also highlighted potential personal income tax reforms, including an increase in the income-tax exemption limit and rationalization of TDS/ TCS rules, which could ease compliance burdens and increase disposable income for middle-class taxpayers.

Enhancing Business Confidence and India's Global Standing
Mitesh Jain, Partner at Economic Laws Practice, pointed out that the bill will help reduce litigation and regulatory uncertainty, which will be welcomed by businesses and investors. “The focus is to ensure that the provisions are simple, easy to interpret, and free from unnecessary complexities that have historically led to disputes. The drafting approach will emphasize precision, with fewer provisos and explanations, thereby streamlining legal provisions and making compliance more straightforward.”

He added that the government’s recent changes to capital gains tax rates are part of a broader push for a uniform tax regime, ensuring consistency and reducing distortions in the system.

“A reduction in uncertainty and litigation will be viewed favorably by investors. A stable and transparent regulatory framework will enhance India’s attractiveness as a business destination and contribute to an improved ranking in ease of doing business indices globally.”

What’s Next? Bill to Be Debated in Parliament
The new Income Tax Bill will be tabled in Parliament next week, where it will undergo detailed discussions and debates. Experts anticipate deregulation, simplification, and structural tax reforms to be at the core of the bill.

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Published 17:08 IST, February 3rd 2025