Finance Minister Nirmala Sitharaman on Thursday asserted that the new Income Tax Bill does not have merely mechanical but structural changes.
She introduced the Bill in the Lok Sabha. She requested the Speaker Om Birla to constitute a Select Committee for examining the Bill. “The committee will be urged to submit its report by the first day of the next session (Monsoon Session),” she said when TMC and Congress members opposed the Bill. The new Bill, once enacted, will replace the Income Tax Act 1961.
“The current Income-tax Act was enacted in 1961 and came into existence with effect from April 1, 1962. It has been amended nearly 65 times with more than 4,000 amendments,” she said while justifying the need for a new Bill.
Detailed FAQ
Meanwhile, the Finance Ministry, in a detailed frequently asked questions (FAQ), said that the Bill proposes to eliminate redundant provisions, reducing its length by nearly half. The drafting style is straightforward and clear, making the provisions easier to understand. “This minimises cross references and conflict by aggregating all applicable provisions related to a single scenario in one place,” the FAQ said.
While the 1961 Act contains numerous cross-references to sections, sub-sections, clauses, sub-clauses, items and sub-items, making the provisions challenging to interpret, the new Bill adopts a simplified reference system, allowing provisions to be cited by simply mentioning the section. For instance, section 133 (1)(b)(ii) in the new Bill would indicate sub-clause (ii) of clause (b) of sub-section (1) of section 133 in the existing Act.
A significant aspect of the Bill is the elimination of the concepts of ‘previous year’ and ‘assessment year’ and using just ‘tax year’. Prior to 1989, the concept of ‘previous year’ and ‘assessment year’ had been brought because the taxpayers could have different twelve-month previous years for each source of income. From April 1, 1989, previous year was aligned to a financial year in all cases.
Two periods
However, ‘assessment year’ continued to be used for various proceedings under the Act. Hitherto, a taxpayer was required to track two different periods, i.e., the ‘previous year’ as well as the ‘assessment year’. This presented difficulties in complying with the provisions of the Act, especially for a new taxpayer who had to keep track of ‘previous year’, ‘assessment year’ as well as ‘financial year’.
The FAQ also highlighted that wherever feasible, extensive use of table formats were made. TDS provisions have been presented in a tabular form. Certain provisions such as Section 10, which contained about 150 clauses has been placed in Schedules and presented in the form of tables.
The FAQ also emphasised that litigations would come down. According to Amit Gupta, Partner at Saraf and Partners, on the tax litigation front, the underlying ethos of the new proposed Income tax Act, 2025 continues as the applicable provisions don’t particularly entail a paradigm shift in the underlying assessment and appellate procedures including, inter-alia, the period of limitations. The inclination of the legislators towards capturing provisions in a more tabulated and reader-friendly fashion is reflective even in such provisions. “Owing the replacement of the assessment and previous year concepts with a single tax year concept, the timelines for issuances of the income escaping notices have been tweaked to align with the limitations in the extant provisions of the Income-tax Act, 1961,” he said.