The government is set to introduce a simpler Income Tax bill to replace the Income Tax Act, 1961 in the Lok Sabha on Thursday.
Once enacted, the statute is expected to come into effect from April 1, 2026. The new Bill has 23 chapters, divided into 536 sections and 16 schedules, spanning 622 pages, compared to 298 sections and 14 schedules spread over 823 pages in the existing Act. It aims to simplify the law which has been subjected to yearly amendments through the Budgets and three major legislative changes in the law first introduced on July 24, 1860, which was replaced by the Income Tax Act 1922 and then the Income Tax Act 1961.
Experts say that the new Bill retains all the provisions from the Income Tax Act of 1961, ensuring continuity while eliminating redundant sections and outdated clauses.
Clear Distinction
The new Bill introduces the concept of the ‘tax year,’ which replaces the confusion between the ‘assessment year’ and ‘previous year’ with the aim to simplify taxpayers’ understanding in Clause 3.
There is an attempt to simplify TDS compliance. All TDS-related sections have been brought under a single clause with simple tables for ease of understanding. Deductions from salaries, such as standard deduction, gratuity and leave encashment, have been tabulated in the new bill in one place instead of being scattered over different sections and rules.
“Income not forming part of total income has now been moved to schedules to simplify the statute. Formula-based approaches have been adopted, for instance, the definition of WDV in the case of the block of assets, which was earlier verbose, is now broken down into a simple formula. All TDS-related sections have been brought together under a single clause with simple tables, for ease of understanding, though this would mean post notification of this bill later, a lot of changes would be required in forms and utilities, for reporting purposes,” said Sandeep Jhunjhunwala, M&A Tax Partner at Nangia Andersen LLP.
Tables have been provided for provisions relating to TDS, presumptive taxation, salaries, and deductions for bad debt. The ‘Taxpayer’s Charter’ has been included in the Bill which outlines the rights and obligations of the taxpayers.
The new bill drops old and redundant sections of the existing law includes tax rates in tabulated forms and removes conditions attached to legal clauses, making the law easier to understand. It also drops explanatory footnotes to legal sections and makes clauses self-explanatory.
Simplified Language
The Bill is free from ‘explanations or provisos’, thereby making it easier to read and comprehend. Also, the word ‘notwithstanding’, which was used excessively in the Income Tax Act of 1961, has been done away with in the new Bill and almost everywhere replaced with the term ‘irrespective’.
The Bill uses shorter sentences and has been made reader friendly with the use of tables and formulae.