Simple language, ‘tax year’ idea in I-T bill set to be tabled on Thursday

Finance Minister Nirmala Sitharaman to introduce the Income-Tax Bill, 2025 in Lok Sabha, focusing on clarity, simplicity, and low tax rates.

New Delhi Finance minister Nirmala Sitharaman is expected to introduce the Income-Tax (I-T) Bill, 2025 in the Lok Sabha on Thursday, with the emphasis being on clarity and simplicity. The law aims to repeal redundant provisions of existing act and introduce new features such as provisions for low tax rates for cooperatives, tax on crypto-assets, incentives for start-ups, clarity on non-resident taxation, definition of capital gains, and the concept of a “tax year” to replace the confusing term “assessment year”.

The bill extensively defines virtual digital assets, including crypto-assets for the first time. (ANI PHOTO)

According to people familiar with the matter, the bill is 622 pages long and has 23 chapters, 16 schedules and 536 clauses. The current Income Tax Act, as amended in 2024 is 823 pages long, and has 23 chapters (with several sub-chapters to accommodate innumerable amendments in last six decades) and 14 schedules.

To be sure, the bill does not make any new announcements in terms of tax exemptions or compliances. It does, however, provide clarity on anti-tax avoidance measures and transfer pricing regulations. The last refers to business between a company and its subsidiaries or arms of a company.

The aim of the new law, the people cited above, is to provide “ease of living” for citizens and “ease of compliance” for businesses with incentives for entrepreneurship, innovation and digital transactions.

That is pretty much what the finance minister said while presenting the Union Budget on February 1: “The new bill will be clear and direct in text with close to half of the present law, in terms of both chapters and words. It will be simple to understand for taxpayers and tax administration, leading to tax certainty and reduced litigation.”

The people , who asked not to be named, said the new law aims to consolidate and amend the existing Income-Tax Act, 1961. The bill will likely be referred to the Standing Committee of Finance for scrutiny after its introduction in the Lok Sabha, they added.

The bill extensively defines virtual digital assets, including crypto-assets for the first time: Any information or code or number or token (not being Indian currency or foreign currency), generated through cryptographic means or otherwise and providing a digital representation of value exchanged with or without consideration, with the promise or representation of having inherent value, or functions as a store of value or a unit of account including its use in any financial transaction or investment, but not limited to investment scheme; and which can be transferred, stored or traded electronically.

They added that the new IT law will prescribe that people dealing in crypto-assets furnish information in respect of transactions of such crypto-assets in a statement.

The people said that according to the bill, provisions of the current I-T Act will continue to apply to any proceedings (including notices, assessment, re-assessment, rectification, penalty, reference, revision and appeals) beginning before 1, April, 2026.

“Conventionally, the committee may like to invite suggestions from the public before giving its recommendations to the government. Then the government would redraft it by incorporating acceptable suggestions. The bill will be enacted only after it is passed in the Parliament and gets President’s assent. All these processes will take time. Hence, initial date for its (the new law’s) implementation is proposed as April 1, 2026,” one of the people said. Even after the law is enacted, there will be scope to make further changes before notifying the rules, a second person said.

According to them, unlike the current I-T law, the proposed bill does not leave much scope for interpretation, and a formula-based approach has been adopted for calculating several things such as written down value of depreciable assets, deductions in case of business reorganisation of co-operative banks, and interest for defaults in furnishing return of income. The bill also removes terms such as ‘assessment year’ and ‘previous year’ and replaces them with ‘tax year’ comprising of 12 months from April 1.

In order to make provisions easily understandable , they are summarised in tabular forms. For example, matters related to tax deducted at source (TDS) and presumptive taxation rates are clearly listed, the people said.

They added that existing exemptions continue, as does the option to remain in old tax regime with a higher tax rate.Finance minister Sitharaman said in an interview with HT on February 2 that there is no plan to do away with the old tax regime.

But there was need for a new law, a third person said.

On accounts of amendments to the basic structure of the Income-tax Act over the decades, the law had become overburdened and the language, complex, increasing cost of compliance for taxpayers and hampering efficiency of the direct-tax administration, this person added.

Tax administrators, practitioners and taxpayers have all raised concerns about the complicated provisions and structure of the Income-tax Act, this person said.

Experts said the bill marks a transformative shift in India’s tax regime, aligning it with global best practices while ensuring fairness, transparency, and compliance. “By streamlining tax structures, introducing faceless assessments, and leveraging technology, the bill aims to simplify tax administration and minimise litigation,” consultancy firm Corporate Professionals’ founder Pavan Kumar Vijay said.

“From a futuristic perspective, this legislation lays the groundwork for data-driven taxation, AI-enabled audits, and blockchain-based compliance mechanisms. With growing globalization and digital transformation, this bill is a progressive step towards a dynamic, investment-friendly tax ecosystem,” he added.

Vijay, however, suggested refining the proposed law through comprehensive dialogue between policymakers, businesses, and professionals. “With this bill, India is not just reforming its tax code but building a robust financial framework for the next decade -- one that fosters economic growth, tax certainty, and global competitiveness,” he said.

Deloitte India partner Rohinton Sidhwa said: “By replacing complex provisions with clearer provisions, it aims to reduce legal disputes and encourage voluntary tax compliance. A notable change introduced by the bill is the shift from the ‘Assessment Year’ to the ‘Tax Year’ … however, its [proposed bill] success hinges on smooth implementation and how well taxpayers adapt to the changes.”

Gouri Puri, partner at law firm Shardul Amarchand Mangaldas & Co said that the code’s primary aim is not to make policy changes, but to simplify the complex I-T laws. “As promised, the new tax law seems to focus primarily on simplification and consolidation such as Introducing the concept of ‘tax year’ in place of ‘assessment year’ in line with international parlance,” she said.

“Multiple concepts of financial year, previous year and assessment year often caused confusion amongst taxpayers because of the semantics: this impacted the readability of tax law. A single concept of a tax year is easy to understand and in line with international practice,” she added.

The Union Cabinet last week approved the draft of the New Income-Tax Bill

On July 23, 2024, while presenting the Union Budget for 2024-25, the finance minister said she would present a revamped and simplified Income-tax Act within six months. The government formed 26 sub-committees and review committees to prepare the draft. The draft bill was prepared after analysing and incorporating key suggestions from 20,000 responses received from various stakeholders. Around 180 offices were involved in the entire process.