10 things you must know about new income tax bill

The new income tax bill is anticipated to be presented in the parliament on Thursday, 13 February. This legislation seeks to streamline the current Income Tax Act of 1961, thereby enhancing comprehension of tax regulations for the average citizen and minimising legal disputes.

Since its establishment, the Income Tax Act of 1961 has undergone 66 amendments across various budget proposals, including two interim budgets.

Nevertheless, numerous taxpayers may harbour doubts regarding the actual simplification of the laws as proposed by the new bill. Government sources have outlined ten essential points from the 2025 income tax bill that are expected to significantly affect taxpayers:

1. New Income Tax Bill: 'Tax year' concept introduced

The new income tax bill is expected to establish the concept of a tax year. This modification aims to resolve the challenges taxpayers encounter due to the existing definitions of assessment year and previous year. Many individuals mistakenly equate the assessment year with the financial year (previous year) when fulfilling their tax obligations and submitting returns.

The consolidation of these concepts into a single tax year is likely to aid taxpayers in discerning which Income Tax Returns (ITRs) they are filing and for which taxes they are making payments.

2. No change in financial year

Taxpayers should be aware that the concept of the financial year remains unchanged. It will commence on April 1 and conclude on March 31. The forthcoming income tax legislation will not adopt the calendar year as its tax year.

3.    Modifications in sections

The new income tax legislation is expected to introduce changes to the sections outlined in the current framework. For example, income tax return submissions are currently governed by Section 139 of the Income Tax Act, while the new tax regime is addressed in Section 115BAC. It is anticipated that the new income tax bill will revise these section numbers, as the terminology within direct tax laws is set to be simplified. Consequently, amendments may occur in the sections of the Income Tax Act, 2025.

4.    Same residency laws

The new income tax bill will not modify the existing residency laws, which are expected to remain consistent in the new legislation. The current income tax framework categorises residency provisions into three distinct groups:
i.    Ordinarily resident individual
ii.    Non-ordinarily resident individuals
iii.    Non-resident individuals
Tax professionals suggest that revisions to the residency laws are necessary, as the existing regulations require taxpayers to review a decade’s worth of information to ascertain their residential status for the current financial year.

5.    Comprehensive Income Tax Bill

To simplify the existing income tax laws, the bill has made some changes. Carved out now in 23 chapters divided into 536 sections and 16 schedules, over 600 pages, a quick look at the new bills demonstrates its comprehensiveness compared to the existing Income Tax Act with 298 sections and 14 schedules.

6.    Structured approach

This increase in sections reflects a more structured approach to tax administration, incorporating modern compliance mechanisms, digital governance and streamlined provisions for businesses and individuals.

7.    Lucidity:

The concepts of explanations and provisos have been removed from the new version, for ease of interpretation and understanding. New concepts such as tax year, instead of previous year and assessment year, have been introduced.

Deductions from salaries, including standard deduction, gratuity, leave encashment, and others, have now been consolidated into a single location rather than being dispersed across various sections and regulations. The revised income tax bill has streamlined the calculation of depreciation for businesses by offering a specific formula.

8.    Easy for you, tougher for your CA

All TDS-related sections have been brought together under a single clause with simple tables, for ease of understanding, though this would mean post implementation of this bill, a lot of changes would be required in forms and utilities, for reporting purposes.

9.    Same deadline

There will be no changes in the deadlines for income tax return filings, the income tax brackets or the regulations regarding capital gains. This decision aligns with the objectives of Budget 2025, aiming to foster tax certainty for taxpayers.

10.    Execution

According to tax experts and government sources, the new income tax bill will come into force with effect from 1 April 2026, that is from FY 2026-27. The new law is likely to be effective only from April 1, 2026, which implies that computation of taxable income and its reporting, for Financial Years ending March 2025 and March 2026, would still be required to be done under the existing Income Tax Act.