Finance Minister Nirmala Sitharaman presented the new Income Tax Bill In Lok Sabha on Thursday, which will replace the Income Tax Act, 1961. The finance minister said, “We are reducing the number of income tax sections to 536.” She added that substantial changes are being made to the income tax bill, with a reduction in the number of chapters.
The new Income Tax Bill aims to simplify and modernise India’s tax system. It will also streamline the legal language, making it easier for taxpayers to understand the provisions. The bill will not impose new taxes. Instead, it will focus on simplifying tax laws, reducing legal complexities, and making compliance easier for taxpayers, as confirmed earlier by the finance secretary.
The bill will feature shorter sentences, provisos, and explanations. The government has also stated that the new law will be 50 per cent shorter than the current Act. One of its key objectives is to reduce litigation. The bill may introduce lower penalties for certain offences, aiming to make the tax system more taxpayer-friendly. The existing Income Tax Act consists of 298 sections across 23 chapters, covering personal income tax, corporate taxes, securities transaction tax, and gift tax.
Additionally, the new bill will introduce a new concept of a ‘tax year,’ defined as the 12 months starting from April 1. For businesses or newly established professions, the tax year will begin from the date of establishment and end at the close of the financial year. Under the new bill, income tax will be assessed based on the economic activity and income earned during the ‘tax year.’
The new legislation is expected to eliminate irrelevant amendments and sections, using clear language that the public can easily understand without the need for professional tax consultation. If passed, the new tax system will be effective from the financial year 2025-26 and will apply to taxpayers starting from the assessment year 2026-27.
