New Income Tax Bill: Prime Minister Narendra Modi-led Union Cabinet has cleared the New Income Tax Bill today, according to a PTI report. The Income Tax Bill being cleared by the Cabinet paves way for it to be tabled in the Parliament next week as part of the Budget session.
The proposed New Income Tax Bill, set to replace the Income Tax Act of 1961, aims to simplify direct tax legislation, eliminate uncertainties and minimise legal disputes. Finance Minister Nirmala Sitharaman has indicated that the bill will be presented in Parliament during the Budget session and subsequently reviewed by the Standing Committee on Finance.
Finance Secretary Tuhin Kanta Pandey has confirmed that the new legislation will feature concise sentences without provisos and explanations, whilst maintaining tax neutrality.
What is New Income Tax Bill? Explained, FAQs Answered
What did FM Nirmala Sitharaman announce?
Finance Minister Nirmala Sitharaman announced during her Budget speech on July 23, 2024, that a thorough review of the Income Tax Act, 1961, would be completed within six months. She emphasised that the revised Income Tax Act would be straightforward, clear and easily understandable.
FM Sitharaman said that this would reduce legal disputes and provide tax clarity to taxpayers, whilst lowering disputed demands. Subsequently, in her 2025-26 Budget speech on February 1, 2025, she confirmed the Income Tax Bill’s introduction in Parliament during the current Budget session.
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What does the New Income Tax Act propose to do?
According to a PTI report, the revised Income Tax law aims to be more accessible and simplified, enabling ordinary citizens to understand it. The government intends to reduce its length by half and simplify the language, allowing taxpayers to clearly understand their tax obligations. This streamlined approach should result in fewer legal disputes and reduced contested tax demands.
How will the New Income Tax Law be leaner?
The current Income Tax Act, 1961, governs direct taxes including personal I-T, corporate tax, securities transaction tax, and previously included gift and wealth tax. Presently, it contains 298 sections across 23 chapters.
Several taxes have been eliminated over time, including wealth tax, gift tax, fringe benefit tax and banking cash transaction tax. The 2022 introduction of the new income tax regime required additional amendments, expanding the Act further.
Throughout six decades, numerous sections have been modified, introduced, removed or become outdated. The new legislation will exclude irrelevant amendments and sections, featuring clear language that the public can understand without professional tax consultation.
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Why is a review of the I-T Act needed?
The current Income Tax Act, established in 1961, requires modernisation to reflect significant societal changes in personal income generation and business operations. The original legislation was crafted during India’s early years as a republic, addressing challenges specific to that era. Whilst amendments were made to accommodate progress, contemporary technological advancements have transformed tax payment and return filing processes. The current system features pre-populated ITR forms using data from various sources, including TDS statements from banks, employers, forex dealers and property transactions.
The existing law has become unwieldy due to numerous amendments over six decades. Technological progress and socio-economic changes necessitate a comprehensive revision of the dated Income Tax Act. The current legislation’s complexity, with its interconnected sections, sub-sections and provisos, makes it challenging for ordinary citizens to understand.
Will New Income Tax Bill mean a higher tax burden for common man?
The implementation is expected to be revenue-neutral, focusing primarily on simplifying the language and making compliance procedures more straightforward. The new Income Tax law is not likely to alter tax rates, as these modifications typically occur through the Finance Act during the annual Union Budget presentation in Parliament on February 1. The upcoming FY26 Budget amendments will be integrated into the new Bill.
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