India to simplify income tax law with new bill

The government plans to replace the Income Tax Act, 1961 with a new income tax bill in Budget 2025, expected to be clear and direct with close to half of the present law in terms of both chapters and words. The Union Cabinet approved the draft on February 7, 2025, and the bill is expected to be introduced during the Budget session. The goal is to simplify the tax code so that even non-experts can understand it, while reducing disputes and litigation.

The move follows a July 2024 Budget announcement to review the Income Tax Act, 1961, citing its complexity and confusion for taxpayers. The aim of the review of the Income Tax Act is to make the Act concise, lucid and easy to read and understand, and to reduce disputes and litigation. Finance Minister Nirmala Sitharaman indicated the bill would be presented to Parliament during the Budget session, with further review by the Standing Committee on Finance.

The rewrite focuses on four key areas: simplification of language, litigation reduction, removal of redundant/obsolete provisions, and complication reduction. Union Finance Secretary Tuhin Kanta Pandey confirmed that the bill will feature concise sentences without proviso and explanations, whilst maintaining tax neutrality.

The new bill is expected to announce a single tax system to reduce complications in ascertaining tax liability, lower compliance burdens, and provide tax certainty. It will also further simplify and rationalize Tax Deducted at Source (TDS) rules, building on recent Budget adjustments.

The new law will clearly state anti-abuse provisions to avoid impacting genuine transactions. One of its features is to reduce litigation by introducing new safe harbour rules, tax settlement schemes, and newer dispute resolution mechanisms with shorter time-frames.

The Central Board of Direct Taxes (CBDT) formed an internal committee on October 7, 2024, to review public feedback on four areas: simplification of language, litigation reduction, compliance reduction, and eliminating obsolete rules. A dedicated webpage invited suggestions from taxpayers and experts, requiring users to specify exact sections or rules for improvement: https://eportal.incometax.gov.in/iec/foservices/#/pre-login/ita-comprehensive-review.

Union Finance Secretary Tuhin Kanta Pandey stated, “He further added that the new income tax bill will not add any new tax or compliance burden to taxpayers. The new income tax bill will incorporate all the tax-related changes announced in the Budget 2025, including income tax rates, slabs and tax deducted at source (TDS) provisions.” As announced in Budget 2025, the codification of the new income tax bill is from the lens of Nyaya rather than Danda, aimed at building taxpayer trust. The bill will include updated income tax rates, slabs, and TDS provisions.