India’s Income Tax Bill 2025: A Bold Overhaul or a Complex Revision?

In a significant move aimed at overhauling India’s tax framework, Finance Minister Nirmala Sitharaman introduced the Income Tax Bill, 2025, in the Lok Sabha on February 13, 2025. This proposed legislation seeks to replace the six-decade-old Income Tax Act of 1961, aiming to simplify tax laws, reduce litigation, and foster a more transparent and taxpayer-friendly environment. The bill is slated to come into effect on April 1, 2026, marking a historic milestone in India’s tax landscape.

Key Features of the Income Tax Bill, 2025

The new bill comprises 536 sections and 16 schedules, a restructuring from the previous 298 sections and 14 schedules in the 1961 Act. Notably, the bill’s length has been reduced to 622 pages from the earlier 880, reflecting efforts to streamline and simplify the tax code.

Simplification and Modernization

A primary objective of the Income Tax Bill, 2025, is to simplify tax laws. The bill proposes to remove more than 300 obsolete and redundant provisions, such as Section 80CCA (deduction for investment in the National Savings Scheme) and Section 80CCF (deduction for investment in long-term infrastructure bonds). Additionally, it introduces the concept of a “tax year,” replacing the terms “previous year” and “assessment year” to reduce confusion among taxpayers.

Revised Tax Slabs

The bill proposes new tax slabs under the revised regime:

• Income up to ₹4 lakh: 0%
• ₹4 lakh to ₹8 lakh: 5%
• ₹8 lakh to ₹12 lakh: 10%
• ₹12 lakh to ₹16 lakh: 15%
• ₹16 lakh to ₹20 lakh: 20%
• ₹20 lakh to ₹24 lakh: 25%
• Above ₹24 lakh: 30%

These adjustments aim to provide tax relief to the middle class and stimulate consumption by increasing disposable income.

Enhanced Clarity and Compliance

The bill emphasizes clearer language and the use of tables and formulas to define concepts like capital gains and cost of acquisition. This approach is intended to reduce errors, prevent differing interpretations, and make the tax code more user-friendly. By replacing complex provisions with clearer ones, the bill aims to reduce legal disputes and encourage voluntary tax compliance.

Stakeholder Reactions

The introduction of the Income Tax Bill, 2025, has elicited mixed reactions. BJP MP Tejasvi Surya praised the bill, stating, “For almost 60 years, India’s Income Tax Act was not reviewed. Like many other areas where PM Narendra Modi’s government has brought tremendous reforms, India’s Direct Taxation System will also be overhauled to make it modern, simple, rational, and more compliance-friendly.”

Conversely, Congress MP Manish Tewari criticized the bill, arguing that it is more complicated than the previous one. He noted, “The Union Finance Minister had said that the new Income Tax Bill will be simpler than the previous bill. In the previous Bill, there were 296 sections. In the new Bill, there are more than 500 sections. In the previous Bill, there were 5 schedules. In the new Bill, there are 14 schedules.”

Implementation Timeline

Once passed by Parliament, the Income Tax Bill, 2025, will be referred to the Parliamentary Standing Committee on Finance for further discussions. Afterward, it will return to both Houses of Parliament for final approval. The bill is expected to come into effect on April 1, 2026, providing a transition period for taxpayers and administrators to adapt to the new system.

Conclusion

The Income Tax Bill, 2025, represents a significant effort to modernize India’s tax system. By simplifying language, removing obsolete provisions, and restructuring tax slabs, the bill aims to create a more transparent and taxpayer-friendly environment. As it progresses through the legislative process, stakeholders will closely monitor its potential impacts on compliance, revenue collection, and economic growth.