NEW INCOME TAX ACT, 2025: GOVERNMENT-APPROVED BILL

NEW INCOME TAX ACT, 2025: GOVERNMENT-APPROVED BILL

Compiled by: Zafarulla Sattar Khan – Auditor & Authorized Tax Practitioner

State President: Karnataka Taxpayers Association ( R )

Introduction
The Government of India has introduced the Income Tax Act, 2025, set to replace the existing Income Tax Act, 1961. This legislative reform aims to simplify the tax structure, minimize litigation, and enhance taxpayer compliance by incorporating modern and transparent provisions.

Cabinet Approval for the New Income Tax Bill, 2025

The Union Cabinet has approved the new Income Tax Bill, 2025, marking a significant step toward overhauling the tax system in India. This decision, as reported by PTI sources, aligns with the government's objective of modernizing and simplifying tax regulations.

Key Features of the New Income Tax Bill

1. Simplified Legislative Framework

o   The bill is drafted in clear, concise language, eliminating complex legal terminology.

o   The revised Act is anticipated to be 50% shorter than the existing law, incorporating shorter sentences and minimal provisos.

o   A senior official stated: "The focus was on simplification, clarity, and ease of understanding by using lucid language, active voice, and reducing redundancy."

2. Preservation of Parliamentary Authority

o   The bill upholds Parliament’s exclusive authority over income quantification and tax levy.

o   "Every rupee collected will remain subject to parliamentary approval, ensuring no undue delegation of powers to tax authorities," an official confirmed.

3. Public Consultation and Stakeholder Engagement

o   The Finance Ministry will conduct a public consultation process to incorporate feedback from taxpayers, businesses, and experts.

o   The bill will be referred to the Standing Committee on Finance for further review and consultation.

o   Finance Minister Nirmala Sitharaman affirmed that stakeholder input will be integral to finalizing the provisions.

4. Resolution of Interpretational Discrepancies

o   The Act seeks to eliminate ambiguities that have historically led to legal disputes.

o   By clarifying contentious provisions, the government aims to reduce litigation and ensure smoother implementation.

5. Structural Reorganization for Ease of Compliance

o   The new Act will merge overlapping sections, avoid unnecessary cross-referencing, and streamline tax provisions.

o   Former CBDT member Akhilesh Ranjan emphasized that grouping related provisions will enhance clarity and ease of compliance.

6. Simplification of Tax Compliance

o   The Finance Secretary confirmed that the bill focuses on simplification rather than introducing new taxes.

o   The initiative aims to make tax compliance less burdensome for individuals and businesses.

7. Expert Drafting and Comprehensive Review

o   Over 100 officers specializing in tax administration contributed to the bill's drafting.

o   A dedicated Internal Committee and 22 sub-committees were established by the CBDT to ensure the Act’s clarity and effectiveness.

8. Reduction in Tax Litigation

o   The revised Act is designed to mitigate tax-related disputes by introducing well-defined tax provisions and rationalized penalties.

o   It also seeks to foster a taxpayer-friendly environment by reducing the scope for arbitrary interpretations.

9. Unification of Tax Regimes

o   The bill proposes consolidation of multiple tax regimes applicable to various taxpayer categories (e.g., individuals, HUFs, companies, cooperative societies) into a single regime.

o   This measure is expected to reduce compliance burdens and enhance tax predictability.

10. Rationalization of Withholding Tax Provisions

·        Anti-abuse provisions will be clarified, and outdated clauses will be removed to facilitate ease of doing business.

·        The Act will focus on reducing unnecessary withholding tax obligations to streamline transactions.

11. Digitalization of Tax Procedures

·        The new Act will promote digitalization in tax administration, making tax return filing and compliance more seamless.

12. Public Consultation and Feedback Mechanism

·        The government invited public suggestions on four key aspects:

1.     Simplification of language

2.     Reduction in litigation

3.     Compliance simplification

4.     Elimination of obsolete provisions

·        Approximately 6,500 responses were received from taxpayers and industry experts.

New Income Tax Slabs (FY 2025-26)

As announced by Finance Minister Nirmala Sitharaman on February 1, 2025, the new income tax slabs applicable from FY 2025-26 (Assessment Year 2026-27) are as follows:

Potential Impact on Taxpayers

·        The Income Tax Act, 2025 is anticipated to be taxpayer-friendly, enhancing transparency and efficiency.

·        It aims to reduce compliance burdens and minimize litigation, benefiting businesses and individuals alike.

Additional Considerations

·        The bill is subject to further modifications before being enacted into law.

·        The government has not yet released the full text of the Act.

·        Taxpayers are advised to stay updated on legislative developments and seek professional consultation for tax planning.

This transformative legal framework is expected to modernize India's tax system, aligning it with global best practices while ensuring fairness and simplicity in taxation.