After the substantial relaxations announced under the new tax regime in the recent Budget, it was a bit unreasonable for folks to expect further miracles from the new Income Tax Bill. But hope springs eternal, and big expectations seem to have been built up that the review of Income Tax Act announced by the Finance Minister in her July budget, will usher in further reforms. The Bill cleans up the language and structure of the 1961 Act but does not attempt any major changes in tax rates.
What are the main differences between the old and new income tax bills?
The main intent of the new Bill is to make the Income Tax Act more lucid, concise and easy to understand. To achieve this, the new Bill makes three kinds of changes to clean up the old Income Tax Act of 1961. One, by shortening sentences, removing legalese and moving text to tables where possible, the new Bill has trimmed the number of words in the entire act from 5.1 lakh to 2.6 lakh. Two, sections and clauses which have become obsolete because of the changing business environment or tax laws, such as laws pertaining to SEZs, fringe benefits tax, wealth tax etc have been deleted. Three, Court judgements and plugging of loopholes over the years had led to the old Act accumulating many provisos and exceptions, appended to every clause, which hindered reading. The new Bill has deleted 1200 provisos and 900 explanations, by incorporating them wherever necessary into the tax provisions. This exercise has reduced the number of chapters in the new Bill to 23 from 47 and sections to 536 from 819. A lot of information on tax rates, exemptions etc that lay people look for have been presented in tables in the schedules which are easier to read.
Besides, the new Bill introduces the concept of “tax year” instead of “previous year” and “assessment” year. Sections and clauses have been renumbered, making sections such as 80C or 80CCD no longer relevant.
How were these changes decided upon?
The tax department invited online suggestions and received over 20,900 inputs. It also met with industry, tax filers, tax professionals and field level officers. A committee of 150 officers from the tax department worked on redrafting the old Act chapter by chapter. This was vetted by the Law Ministry before the final Bill was tabled in Lok Sabha.
Have any tax rates or rules changed with the new income tax bill?
No, tax rates have not changed in the new Bill. However, some of the rules relating to residential status, clubbing of income, return filings in special cases such as foreign travel, re-assessment etc have been tweaked and this could impact individual taxpayers.
Does the bill ease compliance for taxpayers in any way?
Not materially. On the contrary, the new Bill raises reporting requirements on digital earnings, virtual digital assets etc (this is due to the inclusion of the 2025 Finance Bill) for the purposes of calculation of tax. It also grants greater powers to the tax officials on seeking information, search and seizure operations and levying penalties, which could raise the compliance bar.
Are there any changes in return filing etc?
Given the major overhaul of the old Income Tax Act, and the reordering and renumbering of its sections and clauses, it is likely that the entire set of return filing forms will need to be replaced once the new Bill is enacted into law. But thankfully, the new Act is expected to take effect only from April 1, 2026, resulting in no immediate change for tax filers.
