Simplified new Income Tax Bill brought in LS, sent to select panel

The simplified Income Tax Bill-2025 was introduced by Finance Minister Nirmala Sitharaman in the Lok Sabha on Thursday and was immediately referred to a select committee of Parliament.

Aim to Minimise litigation

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• New Bill aims to minimise the scope of litigation and fresh interpretations
• Consolidates provisions pertaining to salary at one place for ease of understanding
• Key words retained, especially where courts rulings have come
• Deductions like gratuity, leave encashment, commutation of pension, compensation on VRS and retrenchment now part of salary chapter
• ‘Tax year’ eliminates the concepts of ‘previous year’ and ‘assessment year’

The committee, whose terms and conditions are to be formulated by Speaker Om Birla, will submit its report on the “first day of the next session”. However, it wasn’t made clear whether the “first day” was the beginning of the second part of the Budget session—first half ended on Thursday—on March 10 or when the monsoon session commences in August.

The Bill, which will replace the Income Tax Act-1961, was introduced amid objections by Congress MP Manish Tewari, RSP’s NK Premachandran and TMC’s Sougata Roy. With Sitharaman terming the objections “untenable”, the Speaker immediately referred the Bill to the select committee. The legislation aims to simplify tax laws and modernise compliance structures. One of the most significant changes is the introduction of simpler terminology, with the ‘tax year’ replacing ‘assessment year’ and ‘financial year’ replacing ‘previous year’.

The ‘tax year’ will represent a 12-month period starting April 1, aligning it with the financial year framework. The introduction of the ‘tax year’ aims to simplify laws and facilitate greater convenience to the taxpayer, especially as the earlier terms created confusion and complexity, especially for first-time taxpayers.

Also, aligning tax period with the financial year and doing away with old fashioned terminology would lead to lesser errors and improvement in compliance, said sources.

Taxpayers would no longer need to differentiate between previous and assessment years as the tax year would directly correspond to the period in which income is earned and reported, said the sources.

Financial records would align seamlessly with the tax year, reducing confusion while filing tax returns and preparing documents, they said. The new Bill lists 23 chapters, 16 schedules and 536 clauses covering a wide range of tax provisions.