Comparison of the new bill vs. Existing Income Tax Act

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Comparison of the new bill 2025 vs. Existing Income Tax Act

The Indian government has introduced the Income Tax Bill, 2025, aiming to replace the Income Tax Act of 1961. The Income Tax Bill, 2025, is focused on simplification, reducing litigation, and making compliance easier while retaining core tax principles. This is a significant development in India’s tax landscape, especially given the scale of the proposed overhaul. The introduction of the Income Tax Bill, 2025, marks a historic moment in India’s tax landscape, reflecting the government’s commitment to creating a more transparent, efficient, and taxpayer-friendly. While it does not introduce major policy changes, its structural changes and clarity improvements make it a landmark shift in India’s tax system.

Need for a New Income Tax Bill:

The Income Tax Act, 1961 has been amended nearly 65 times with over 4,000 amendments since its enactment. Over time, concerns arose about the complexity, redundancies, and intricate legal language in the Act. The new Income Tax Bill, 2025, aims to simplify and modernize tax laws, making them more concise, easier to understand, and less prone to litigation. Here are some key takeaways and potential implications:

Major Structural and Simplification Changes:

The number of sections has been reduced from 819 (including sub-sections) to 536. The word count has been reduced from 5.12 lakh words to 2.6 lakh words. The number of provisos (1,200) and explanations (900) has been eliminated to avoid excessive legal complexity. Cross-references have been minimized; instead of complex citations (e.g., 133 (1)(b)(ii)), the new Bill adopts a simplified reference system.

Consultation and Global Practices Considered

The Finance Ministry sought 20,976 online suggestions and held meetings with industry experts. International tax simplification experiences from the UK & Australia were studied. 60,000+ man-hours were spent in drafting the new Bill.

Major conceptual changes:

Previous Year & Assessment Year Replaced: The bill introduces the concept of “Tax Year”, eliminating the confusion of previous year vs. assessment year.
Tables and Formulae for Clarity: Extensive use of tables and structured formats has been made (e.g., TDS rates are now clearly listed in tabular form).
Exemptions and Deductions Consolidated: Provisions scattered across various sections (such as salary-related exemptions) have been grouped for easier reference.
Redundant Sections Removed: Obsolete provisions (e.g., section 10A for Free Trade Zones) have been omitted.

Key Highlights of the Income Tax Bill, 2025:

Simplification of Tax Laws : By replacing complex provisions with clearer ones, the bill aims to reduce legal disputes and encourage voluntary tax compliance. It presents tax rates in tabulated forms, removes conditional clauses, and eliminates explanatory footnotes, making the law more accessible. Reducing the number of sections by 25-30% is a welcome move. The current Income Tax Act, 1961, has become bulky and complex with numerous amendments over the years. And it Consolidating deductions and exemptions (like clubbing Sections 10 and 80C to 80U) will make compliance easier, but taxpayers will need to reassess their tax planning strategies.
Revised Tax Slabs and Standard Deduction & No Change in Tax Rates : Raising the standard deduction to ₹75,000 and making income up to ₹12 lakh exempt (effectively ₹12.75 lakh after deductions) is a major relief for the middle class. and This could encourage higher disposable income and consumption, aligning with the government’s focus on economic growth. The new Bill does not change tax rates. And However, all amendments from the Finance Bill, 2025, have been incorporated.
Capital Gains Tax Reforms : It will be crucial to see how the new framework impacts real estate transactions, equity investments, and business sales. also With previous discussions on rationalizing LTCG and STCG rules, the new structure may introduce a more streamlined tax regime for different asset classes.
Increased Focus on Digital Assets: The bill supports digital record-keeping and online tax compliance. Cryptocurrencies (VDAs) are now formally recognized and taxed as assets, similar to other capital gains. Clearly defining Virtual Digital Assets (VDAs) and their taxation is essential for the crypto industry, reducing ambiguity. And this bill Expanding GAAR provisions could also mean stricter oversight on tax planning strategies using digital transactions. The bill proposes granting tax authorities extensive powers to access taxpayers’ electronic records, including emails, social media accounts, and online trading and bank accounts during searches. This represents a notable departure from the current law, which does not explicitly cover such digital domains. Experts emphasize the need for clear safeguards to balance legitimate tax investigations and the protection of digital rights and privacy.
Extended Time for Filing Updated Returns : Increasing the time limit from two to four years gives taxpayers more flexibility to rectify past errors. This aligns with global best practices, reducing litigations and disputes.
Push for Automation & Faceless Assessments : Strengthening e-filing and automated assessments could reduce tax evasion and corruption. However, the implementation must address existing challenges such as delays in refunds and glitches in faceless assessments.
Clarity for Non-Profit Organizations & Exemptions : Stricter compliance rules could impact many NGOs and trusts. And Limiting commercial activities for tax-exempt entities may prompt restructuring in the non-profit sector. All provisions related to NPOs (earlier spread across multiple sections like 11, 12, 80G, etc.) have been consolidated into a single chapter. Exemptions for certain persons, businesses, and income types have been organized into schedules.
Provisions for TDS and TCS : TDS & TCS have been presented in tabular form, reducing confusion in tax deduction rules. Different tables for resident and non-resident taxpayers to simplify deduction requirements.
Higher Threshold for Presumptive Taxation: For businesses, the turnover threshold for the presumptive taxation scheme is increased to ₹3 crore (from ₹2 crore). For professionals, the threshold is increased to ₹75 lakh (from ₹50 lakh). This aims to reduce compliance burdens for small businesses and professionals.
No Change in Tax Audit Rules – CAs to Retain Primary Role : Chartered Accountants will continue to be the only professionals authorized for tax audits. Company Secretaries and Cost Accountants are NOT included in the tax audit framework.

What’s Next?

Parliamentary Scrutiny & Standing Committee Review : The new bill reduces the law’s length from over 800 pages to 622 pages by eliminating obsolete sections and streamlining provisions. It comprises 536 sections across 23 chapters and includes 16 schedules. Since this is a 622-page bill with 536 sections, the Standing Committee will likely deliberate on industry feedback before finalizing the provisions. Businesses, taxpayers, and financial experts should closely follow committee discussions for any last-minute revisions.
The Income Tax Department will provide a section-wise mapping of the old and new provisions. New rules, forms, and software changes will be implemented before the transition.
If passed in this session, it could take effect from April 1, 2026 (AY 2026-27). Once passed, the new legislation is set to come into effect on April 1, 2026. Govt going to take the Public & Industry Consultation regarding Expect feedback from chartered accountants, tax professionals, and business chambers influencing the final draft.

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