New Tax dynamics

Filing income-tax returns is an onerous task for a vast majority of people each year. With the sword of complicated provisions and strict penalities hanging over their head and the confusing jargon of different sections offering little help, many have to knock at the doors of chartered accountants and tax consultants to file flawless returns. Is the new Income Tax Bill, tabled by the Union Finance Minister earlier this week, going to change this with its promise of simplifying the tax structure, or it is just a cosmetic treatment of giving a lean look to the ‘bulky’ Income Tax Act, 1961?

According to a statement issued by the Finance Ministry, the new Bill is a significant step toward simplifying the language and structure of the 1961 Act based on global best practices.

This simplification exercise is, basically, aimed at minimising the scope of litigation and fresh interpretations, making the I-T law more user-friendly. Based on the “trust first, scrutinise later” philosophy, the new law is meant to increase tax compliance in the country, and add more people to the taxpayers’ club.

Short and Sweet!

• The new Bill has a word count of 2.6 lakh, lower than 5.12 lakh in the current Income Tax Act.
• The number of sections is 536, as against 819 effective sections in the existing law.
• The number of chapters has also been halved to 23 from 47.
• The Income Tax Bill, 2025, has 57 tables, compared to 18 in the existing Act.

Making sense of Tax year concept

• Due to the concept of ‘Tax Year’, there might be questions whether the period 1.4.26 to 31.3.27 would be in conflict with the old and new Acts. However, this is not to be, as it will be Assessment Year 2026-27 of the Income Tax Act, 1961, and will pertain to the income for the previous year 2025-26 and not to the income of the financial year 2026-27. The tax year 2026-27 of the new Act will pertain to the income of a taxpayer for the financial year 2026-27.
• Vivek Jalan, Partner — Tax Connect Advisory Services LLP, explains, “The assessment for income of the previous year (financial year) 2025-26 of a taxpayer shall be done as per the provisions of the Income Tax Act, 1961, for the assessment year 2026-27. The assessment for income of tax year (financial year) 2026-27 of a taxpayer shall be done as per the provisions of the Bill for tax year 2026-27.”

Why the change

The current Income Tax Act was enacted in 1961 and became applicable with effect from April 1, 1962. It has been amended nearly 65 times, with more than 4,000 amendments. Over the years, the amendments “accumulated” intricate language, detailed provisions and redundancies which made a common taxpayer’s job tough.

As Prof Manoj K Pandey, a faculty member at the Birla Institute of Management Technology, puts it, “With 64 years of legacy and a series of amendments, the existing I-T Act has become complicated, with scope for different interpretations leading to litigations. The simplification of wording in the new Act and the government’s thrust on the new tax regime would definitely improve self-compliance by individual taxpayers, leading to a reduction in cases.”

Simpler, concise

The Income Tax Bill, 2025, simplifies the language, omits redundant provisions and uses shorter sentences.

“The drafting style of the new Bill is straightforward and clear, making the provisions easier to understand... This (tables) minimises cross-references and conflict by aggregating all applicable provisions related to a single scenario in one place,” the Income Tax Department FAQs mention.

As a taxpayer, the major difference that you’ll have post April 2026 (after the new law comes into force) will be the elimination of the concepts of “previous year” and “assessment year”.

Earlier, a taxpayer had to track two different periods; there were issues in complying with the provisions of the Act, especially for a new taxpayer, who had to keep track of “previous year”, “assessment year” as well as the “financial year”.

Himanshu Sinha and Aditi Goyal from Trilegal say, “The new Income Tax Bill, 2025, comprises 536 clauses and 16 schedules running over 622 pages. However, this lengthiness is largely attributable to an attempt to break down and split complex provisions with multiple provisos and sub-sections into concise, reader-friendly clauses. The Bill incorporates modern financial and technological advancements, and employs simple verbiage while getting rid of redundant provisions and unnecessarily complex wording.”

It enhances legal clarity by refining and shortening some of the lengthy, complex provisions — for instance, the tax deduction at source provisions, which spanned over 35-plus sections, are proposed to be consolidated under only two clauses in the proposed legislation. “The Bill offers additional guidance on certain sections that entailed complex scenarios and includes an interpretation section below the relevant provision if it requires additional explanation,” adds Aditi Goyal.

Moreover, the provisions involving the same issues, which are present in different chapters in the current Act, have now been consolidated. The Bill also consolidates provisions pertaining to salary at one place for ease of understanding, so the taxpayer does not have to refer to separate chapters for filing return of income. Deductions like gratuity, leave encashment, commutation of pension, compensation on voluntary retirement and retrenchment compensation are now part of the salary chapter itself.

In order to boost compliance, the time frame for filing updated returns is to be extended from two to four years, giving more room to taxpayers to rectify any omissions or errors. The government believes that these changes will make tax compliance easier, while ensuring a fair tax structure for all categories of taxpayers.

Room for improvement

While the attempt to make the law simple to understand is laudatory, a few aspects require consideration.

As Himanshu Sinha from Trilegal puts it, “For instance, the definition of income in the new Bill has more than 20 line items. The last line item classifies ‘any other income referred to in section 2(24) of the Income Tax Act, 1961’ as income as well. This would imply that to this extent, the new law would need to be read along with the existing Act, which should ideally not be the case given the intent with which the new law has been proposed.”