New Income Tax Bill Referred to Lok Sabha’s Select Committee

Moneylife Digital Team 13 February 2025

Economy & Nation

In a significant step towards tax reform, Union finance minister (FM) Nirmala Sitharaman on Thursday introduced the Income Tax Bill, 2025, in the Lok Sabha. The Bill aims to streamline and simplify tax provisions, making them easier to understand and reducing the potential for legal disputes. The much-anticipated Bill will also replace terminologies like ‘assessment year’ (AY) and ‘previous year’ with the easier-to-understand ‘tax year’ (TY) as part of a move to simplify language while removing provisos and explanations.

After introducing the Bill, the FM urged Lok Sabha speaker Om Birla to refer the draft law to a select committee of the lower house which will submit its report by the first day of the next session. Subsequently, before its final approval in Parliament, the Bill will be reviewed by the select committee. If passed, the new law is expected to come into effect on 1 April 2026.

The introduction of the Bill coincided with the conclusion of the first part of the Budget session of Parliament on Thursday. The second phase of the session will resume on 10th March and continue until 4 April 2025.

The proposed legislation is set to replace the existing Income Tax Act, 1961, which has expanded considerably over the past six decades due to numerous amendments. The new Bill, which spans 622 pages with 536 clauses, is a condensed and modernised version of the current 823-page Act containing 819 Sections.

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The primary objective of the Bill is to make tax laws more transparent, comprehensible and taxpayer-friendly. By eliminating convoluted provisions and archaic clauses, the government seeks to reduce litigation and encourage voluntary compliance.

One of the notable changes is the introduction of clearer terms. For instance, the term ‘assessment year’ will be replaced with ‘tax year’, reflecting a more straightforward approach to taxation. While no changes will be made to the existing tax slabs or rebates, the Bill is designed to enhance readability and user-friendliness.

Additionally, the new framework may include lower penalties for certain offences, further easing the burden on taxpayers and fostering a more cooperative tax environment.

With this reform, the government aims to modernise India's tax system, making it more efficient and accessible while preserving the core principles of taxation. Taxpayers can expect a more simplified and transparent structure as the country moves towards implementing this much-anticipated legislation.

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