New Income Tax Bill: Expect simplified rules, digital focus, and reduced litigation

After its introduction in the parliament, the Bill, which is reportedly is 622 pages long, will be referred to the standing committee for review. “The earlier Income Tax Act, 1961, is over 823 pages long. The new Bill’s length could be around 566 pages if you take into account the relevant clause-related pages. The new Bill is likely to eliminate ambiguities and provide clarifications on a host of issues,” said chartered accountant Nitesh Buddhadev, Founder, Nimit Consultancy.

Income tax rates, slabs, and the capital gains tax structure could remain unchanged. "Based on an initial review, the new Income Tax Bill does not seem to introduce any significant changes to the charging provisions, computation methods, or assessment procedures. Several provisions within a section have been restructured into separate sections," said Lokesh Shah, Partner, IndusLaw.

Also read: New Income Tax Bill simplifies language, eases compliance: Experts

Here are some changes that income taxpayers could see in the income tax rules, starting next financial year:

‘Tax’ year to replace ‘financial’ year

At present, taxpayers have to compute the tax on income earned in a financial year and file the income tax returns in the subsequent financial year, also known as assessment year. For instance, income tax returns for the financial year 2024-25 have to be filed by July 31, 2025. Now, the financial year will be replaced by ‘tax’ year, which will run from April 1 to March 31, as per the Moneycontrol report.

“In India, we have this dual concept of assessment year and financial year. The I-T Bill might do away with this structure. So, now, you will be filing return for the income earned in the tax year – say, 2024-25 – in the subsequent year,” said Rotti.

The Income Tax Bill could eliminate the concept of assessment year. “For laypersons, these terms can be quite confusing. So, they will only have to deal with the simpler term ‘tax’ year,” said Ritika Nayyar, Partner, Singhania and Co LLP, solicitors and advocates.

More streamlined tax structure

The number of sections could go up as a simpler structure which subsumes sub-sections is introduced. “For every section in the current I-T Act, there will be a corresponding section in the new I-T Bill. The former has, for example, section 80, along with sections 80C, 80D, 80E and so on. So the last section in the current I-T Act, viewed purely from a numerical perspective, is 298. But, now, there will be re-numbering, and as a result, the number of sections (or clauses) could go up to over 500, but overall there is simplification,” said a chartered accountant who did not wish to be named.

Tax authorities’ access to cryptocurrencies

“Broadly, the Bill could make provisions for something called virtual digital space, which will allow authorities to override the access codes and attach these assets in case of search and seizure operations. However, this does not mean virtual digital assets have gained legal validity – it remains an unregulated asset class,” said Rotti.

Residency rules may remain unchanged

The rules for determining tax residency and the status – non-resident, resident-but-not-ordinarily resident and ordinarily resident – could remain unchanged, according to sources.

Also read: New I-T bill slashes sections by over 42% to 536 for easier compliance

Focus on pre-filed ITR, digital assessment

Besides simplifying legal jargon, there will be a greater focus on pre-filed income tax returns as well as faceless assessment. "Digitalisation will mean less manual work, fewer errors and smoother return-filing experience," said Mumbai-based chartered accountant Chirag Chauhan. This is an ongoing process that the new Bill is likely to take forward.