New Income Tax Bill 2025: Less complex, increased compliance to unified tax rates – how taxpayers will be impacted

New Income Tax bill 2025: Finance Minister Nirmala Sitharaman on Saturday announced that the New Income Tax bill will be presented in the Parliament next week, after which it will be reviewed by a parliamentary committee. 

She added that the Reserve Bank of India (RBI) and the government will collaborate closely on various economic matters, including inflation and growth. She was joined by RBI Governor Sanjay Malhotra and MoS Finance Pankaj Chaudhary. This statement followed the recent repo rate cut by the RBI MPC.

The Union Cabinet approved the new Income Tax Bill on Friday, which is poised to replace the existing Income Tax Act of 1961. The announcement of a review of the Income Tax Act came following the Union Budget 2024 in July. 

The objective of the review is to simplify the income tax laws, making them more concise and easier to comprehend. The primary aim of the bill is to simplify legal terminology to make it more accessible for taxpayers to understand the provisions. By enhancing clarity, it is anticipated that disputes and litigation will decrease, ultimately offering taxpayers a greater sense of tax certainty.

“In respect of criminal law, our government had earlier ushered in Bharatiya Nyaya Sanhita, replacing Bharatiya Danda Sanhita. 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, both in terms of chapters and words. It will be simple to understand for taxpayers and tax administration, leading to tax certainty and reduced litigation,” FM Sitharaman said during her Budget 2025 speech on February 1. 

The anticipated New Income Tax Bill 2025 is set to bring about a significant shift by allowing immediate income tax reliefs, removing the necessity to rely on budget updates or amendments to the Income Tax Act. Additionally, there are talks surrounding the incorporation of provisions that would empower the government to modify deduction and rebate limits via executive orders.

Shefali Mundra, Tax expert- ClearTax, said: “The new Income Tax Bill will have fewer provisions than the current law, with nearly half of its provisions. Being easier to read and understand for taxpayers and tax authorities alike, it is set to give more certainty to taxation and reduce litigation between taxpayers and the revenue authority.”

The following are the changes expected in the new income tax bill:

> Simplified Residence Rule: It is expected that rules for determining residential status will be simplified.

> Simplified Tax Structure: It is expected to have almost half of the provisions of the current law.

> Ease of Compliance: It is expected that the new income tax bill will make the compliance easier for the taxpayers and the income tax authorities.

Benefits of New Income Bill

The existing Income Tax Act is often perceived as overly broad and complex, making it challenging for taxpayers to navigate on their own. Many individuals find it necessary to seek guidance from tax professionals or chartered accountants in order to comprehend and adhere to the current income tax regulations and avoid potential legal issues.

In an effort to address these concerns, the Central Board of Direct Taxes (CBDT) has established a committee to evaluate the Income Tax Act. Feedback and suggestions on potential changes to the Act can also be submitted by ordinary citizens through the income tax e-filing portal. The proposed streamlining of the Income Tax Act through the introduction of a new income tax Bill is intended to simplify the tax laws, making them more accessible to taxpayers. This simplification is expected to lead to a reduction in errors and a clearer understanding of the regulations among taxpayers.

Mundra added: “The objective of streamlining the Income Tax Act, to be achieved through the introduction of a new income tax Bill, is to make the laws more easily understandable for taxpayers.”

> Reduced Complexity: The new income tax bill is expected to simplify the tax structure by minimising the number of deductions and exemptions available to taxpayers.

> Increased Compliance: It will streamline tax laws and reduce legal ambiguities.

> Unified Tax Rates: It is expected to rationalise tax rates that align with global standards, making India more attractive for both domestic and foreign businesses.

> Minimised Legal Disputes: The simplification of tax laws is expected to reduce litigation burdens for individuals and businesses significantly.