After receiving the cabinet nod last week, new income tax law is set to be tabled in the Parliament this week in the ongoing budget session.
This is seen as a historic bill which will replace the current legislation which was enacted way back in 1961.
Why is there a need for the new income tax law? There are essentially four aims to introduce the same. These are i) to reduce the litigation between taxpayers and income tax department, ii) simplification of text in the provisions, iii) removing the provisions that are not useful anymore and finally, iv) reducing procedural formalities which are avoidable.
The new law is expected to be around half the size of the current law with 25-30 percent fewer provisions.
New income Tax Bill: 10 key points to know
- Cabinet nod: The new income tax bill has received the cabinet nod which means it will be tabled in the Parliament.
2. To be tabled: After it is tabled in the Parliament, it will be referred to a Parliamentary standing committee on finance which will start the consultation.
3. Comprehensive review: It was announced by Union Finance Minister Nirmala Sitharaman in July 2024 that the income tax law will undergo a comprehensive review, and the entire process will be completed in six months.
4. Public recommendation: Afterwards, suggestions were invited on income tax portal where taxpayers could give their suggestions with regards to any provision. The suggestions were meant to be given along four different criteria: simplification of language, litigation reduction, redundant provision and reducing compliance.
5. Adhering to justice: Finally, while presenting Budget 2025 on Feb 1, she again asserted her intent to roll out the new income tax law and said that this will be in line with the doctrine of nyaya (justice) under which the government replaced Indian Penal Code with Bharatiya Nyaya Sanhita.
“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,” she had said during her Budget speech.
6. Half the size: After the Budget, Ms Sitharaman in an interview with Mint, mentioned that the new law will be half the size of the current law. “We hope that it will be at least half the size of the (old tax code),” she said.
She also mentioned that she wants to pass the bill in the Budget session of Parliament. “Normally, standing committees go through this (kind of bill),” she also said during this interview.
7. Easier to comply: The new law will be simpler and easier to comply with. It will also use fewer words to convey the same things. And several amounts which we used as either benchmark or ceiling are all being reviewed— whether they are relevant today, whether they need to be there today.
8. Decriminalised approach: FM has also highlighted that there will be a very decriminalised approach in the new income tax law to dealing with the penalties. Even now, Income Tax does not arrest you and take you anywhere, she told Mint.
9. Issues relating to interpretation: The bill aims to resolve the issues which arise out of interpretation done by various courts of law.
10. Avoid cross referencing: There is an expectation that the new bill will avoid cross-referencing which means referring to multiple provisions to make sense of what is said in one of them.
