The new Income Tax Bill FAQs - Finance Ministry answers key questions

The Income-Tax Bill, 2025

Finance Minister Nirmala Sitharaman introduced the new Income Tax Bill 2025 in the Lok Sabha on February 13, and urged the Speaker to refer it to a select committee of the House. The committee will submit its report by the first day of the next session, FM Sitharaman said, adding that the Speaker shall decide on the composition and rules of the proposed panel.

The Bill will replace terms such as 'assessment year' with 'tax year', and attempt to simplify the language of the tax bill and its explanations. The broad scope of the new Income Tax Bill is has been shared by the Finance Ministry in the form of Frequently Asked Questions:

Ans: The current Income-tax Act was enacted in 1961 and came into existence with effect

from 01.04.1962. It has been amended nearly 65 times with more than 4000 amendments, year

on year through Finance Acts, based on the evolving requirements of modifications in taxation

policy.

Ans: Tax administrators, practitioners and taxpayers have acknowledged the contribution of

the Income-tax Act, 1961 in overall tax governance and economy. However, over the time

concerns have also been expressed over the accumulation of amendments, the intricate

language, detailed provisions, redundancies and the heavy structure of the Income-tax Act.

Ans: The Income-tax Act is dynamic legislation requiring regular updating and amendments

to reflect the nation’s changing economic, social, and political realities. Criminal and other

civil laws do not undergo such frequent updating and amendments whereas the Income-tax Act

is regularly updated (on annual basis) to reflect the economic changes, fiscal policies, and

government priorities. It, therefore, adapts to changes in the economy, business environments,

inflation rates, income sources, and global financial trends. The government has introduced tax

reforms to encourage specific sectors of the economy while balancing the same with

requirements of revenue collection and widening/deepening of the tax base. Given its direct

link to taxation and economic conditions, the Act needs to be more adaptable to reflect shifting

economic policies, changing incomes, inflation, and emerging industries. The dynamic nature

of the Income-tax Act provides it flexibility to accommodate new economic trends.

Examples:

i. To promote exports, specific provisions such as 80HH, 80HHC were brought into the

statute. The same having served intended purpose have been since omitted or made

inapplicable after sun set date.

ii. To promote infrastructure development, section 80IA was brought into Income-tax Act,

1961.

iii. Sections 80HHE, 10A and 10AA were introduced for facilitating software exports.

iv. Section 80IAC is yet another example of encouraging the start-ups.

Ans: The income tax law has become increasingly bulky over time, with its traditional style of

drafting and numerous amendments. The complexity of language in the present Act is a

product of different factors. To keep pace with certain legal pronouncements, explanations and

provisos were often inserted to clarify legislative intent. Changing taxation priorities also led

to introduction of additional text to an otherwise simple provision. Further, certain provisions

remained in the statute, despite becoming non-operational, in view of pending claims/issues

from earlier years.

Ans: Attempts have been made in the past, including those in 2009 and 2019 for simplification

of the Income tax Act. The recommendations from these efforts, as regards policy, have been

considered in the amendments carried out from time to time.

Ans: Simplification of tax laws has received attention globally. Countries have undertaken

similar exercises to enhance clarity and compliance in their taxation laws.

In the UK, the process was carried out during the period 1994 to 2010 for simplifying the

language. Before simplification, the UK Income and Corporation Tax Act, 1988 comprised

960 pages. However, after simplification, it was divided into five separate Acts, with their page

counts increased, resulting in a more segmented but overall larger body of tax law.

Similarly, Australia underwent a similar process during 1994 to 1997, where simplification of

language also resulted in a longer tax code.

These international experiences emphasize the delicate balance between simplification and the

need for clear, unambiguous legal language. Drawing from these lessons, effort has been made

to focus not just on linguistic simplification but also on structural rationalization.

Ans: The Hon’ble Finance Minister in the budget speech in July 2024 stated that the purpose

of the comprehensive review of the Income-tax Act, 1961, is to make the Act “concise, lucid,

easy to read and understand”.

Ans: Following ground rules have been considered for simplifying the existing provisions:

i. The Bill proposes to eliminate redundant provisions, reducing its length by nearly half.

ii. The drafting style of the new Bill is straightforward and clear, making the provisions

easier to understand by incorporating more than 57 tables compared to 18 tables in the

Income-tax Act, 1961. Sub-sections and clauses have been used, instead of relying on

provisos and explanations for exceptions and carve-outs. This minimises cross-references and conflict by aggregating all applicable provisions related to a single

scenario in one place.

iii. All provisos (about 1200) and explanations (about 900) have been removed.

iv. 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. This change makes the Act's language easier to understand.

v. A significant aspect of the Bill is the elimination of the concepts of ‘previous year’ and

‘assessment 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 1st April 1989, previous year was aligned to a

financial year in all cases. However, ‘assessment year’ continued to be used for various

proceedings under the Act. Thus, 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 to 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’.

Ans: A comprehensive consultative process was undertaken for the simplification exercise.

A total of 20,976 online suggestions for simplification and removal of redundancies were

received, analysed and relevant suggestions were categorized into policy-related, language

simplification, removal of redundant or obsolete provisions, etc. Meetings with industry and

professional associations were held and field-level brainstorming sessions were held within the

Income Tax Department, towards this exercise.

At the international level, consultations were held with some of the taxation authorities that

had undertaken similar exercise in the recent past, viz. the Australian Tax Office and Treasury,

and the UK’s Office of Tax Simplification.

The documents prepared in 2009 and 2019, were also referred, while undertaking the exercise.

International and national guidance material such as ‘Drafting Guide for Simplification of

Laws’ issued by Legislative Department, Ministry of Law and Justice, was studied for

simplification of legal language.

Ans: In addition to the stakeholder exercise mentioned in Q I.9, suggestions were sought

from taxpayers, industry and professional associations, and field level officers of the

Department. A committee of around 150 officers of the Department was actively involved in

the entire exercise. The Committee prepared the draft text of various chapters, which was

meticulously vetted by the Legislative Department of Ministry of Law and Justice, and

consolidated in the form of the final Bill, after necessary approvals.

More than 60,000 man-hours were dedicated by the team for finalising the new Bill.

Ans: The readability of tax law has been improved by using simpler language, as against

traditional legal language. Where multiple situations are covered, the sections have been made

enumerative. Wherever feasible, extensive use of table formats has been 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.

As a result of the comprehensive exercise, the size of the new Bill has reduced by about half

on one hand and one the other, the provisions have been consolidated and presented in a user-friendly format.

Ans: Provisos (more than 1200) and Explanations (more than 900) have been removed, with

their simplified content placed as sub-sections or clauses. Wherever feasible, procedural

aspects and specific details are proposed to be provided by way of Rules.

Ans: Yes. Certain provisions became redundant due to numerous amendments and/or policy

changes over the years. This resulted in large number of such provisions in the Act. For

example, deduction under section 10A, which was a special provision for newly established

industrial undertakings in the free trade zones, is no longer available from the Assessment Year

2012-13, onwards. Such obsolete provisions have been removed from the text of the Bill.

However, provisions applicable to earlier Assessment Years shall be governed by Repeal and

Savings provisions.

Ans: In addition to removal of ‘provisos’, ‘explanation’ and redundant provisions, formulae,

tables, and structures have been used to enhance clarity in the new bill. To the extent possible,

provisions involving the same issues, which were present in different chapters in the current

Act, have now been consolidated. Redundancy has been removed and definitions at multiple

places have been consolidated.

In case of provisions relating to Non-Profit organisations (NPOs), the entire text related to

NPOs has been consolidated and structured into 7 sub-parts which contain provisions related

to Registration, Income, Commercial activities, Compliances, Violations, Registrations for the

purposes of eligibility of donations and Interpretations.

Ans: The new Income-tax Bill is approximately half the length of the existing Income-tax Act

1961, with significant re-organisation of provisions in different sections. While undertaking

simplification exercise, a conscious attempt has been made to minimise the scope of litigation

and fresh interpretations. For this purpose:

a. Key words/phrases, especially where courts have given rulings, have been retained

with minimal modifications.

b. Language has been simplified by use of short sentences to the extent possible.

c. Sections have been translated into row or sub-rows in tables, reducing the number

of words and bringing clarity.

d. Provisions have been made clear to minimize scope for multiple interpretations. The

provisos and explanations have been removed and simplified content has been

placed as sub-sections and clauses.

e. Provisions related to international taxation have been dealt with, broadly, to ensure

tax certainty.

f. NGO chapter has been made more comprehensive with use of plain language.

g. Exemption sections, for example section 10 in the present Act, has been made

simpler through tables and placing large number of provisions in Schedules.

h. Formulae and tables have been used to enhance clarity, wherever feasible.

i. Provisions involving same issues and definitions, which were present in different

chapters in the existing Act have been consolidated, to the extent possible.

Ans: There has been a significant reduction in the text of new Bill, in comparison to the existing

Income Tax Act, as summarised below.

Besides about 1200 Provisos and 900 Explanations have been removed.

Ans: During the course of numerous amendments to the Income tax Act, 1961, several policy

decisions were incorporated as separate provisions. Many a times such provisions were

connected to already existing sections and accordingly the new sections were numbered in

continuation to the existing sections. For example, several provisions relating to tax on special

cases were inserted as sections starting with 115 series viz 115 AC,115AD, 115JB, 115VP etc.

As a result of such insertions, effective sections existing in the Income tax Act, 1961 are 819.

Ans: While the existing Income-tax Act contains 298 numbered sections, effective sections

in the current Act are 819. This is because other than numeric section numbers there are large

number of sections with alpha-numeric codes such as 115A to 115WM (117 sections) and so

on. The Income-tax Act not only deals with levy of tax but it is a comprehensive document,

which encompasses all aspects of tax administration. It also includes other aspects such as:

(a) laying down the administrative framework, assigning roles and responsibilities for assessing

officers, taxpayers, tax deductors, and professionals etc;

(b) setting out the framework for income determination, timelines, appellate procedures,

enforcement, assessments, and penalties; and

(c) taking into account the impact of interpretations on economic policy, affecting both

domestic and international investments.

The new Bill proposes 536 sections to meet the above-mentioned requirements. Further,

several sections in the new Bill exist primarily to honour the commitments under the existing

tax regime, including provisions relating to Minimum Alternate Tax (MAT), various

deductions and exemptions, etc. These provisions will remain in force until their respective

sunset clauses take effect. Therefore, these are required to be part of new Bill to ensure a smooth

transition, while maintaining legal and policy continuity.

Ans: The simplification exercise, inter-alia, encompasses following aspects:

i. Redundant provisions of the Income tax Act have been removed;

ii. Sub-sections and clauses have been used, instead of relying on provisos and

explanations for exceptions and carve-outs;

iii. Simplified system for cross referencing of sections, sub-sections, clauses etc has been

used;

iv. Extensive use of tables, formulae for enhanced clarity;

v. Consolidation of provisions scattered across various sections/ Chapters relating to a

single issue; etc

Since there have been regular amendments to the Income Tax Act, 1961 including amendments

proposed in Finance Bill, 2025, the Act stands updated from policy perspective. All

amendments proposed upto Finance Bill 2025 have been duly incorporated in the new Income

tax bill 2025. Therefore, while no major policy related changes have been made in the Bill, the

above aspects have led to proposed ‘material’ changes in the existing law.

Ans: Section-wise mapping will be made available on the official website of the Income Tax

Department.

Ans: The concept of ‘tax year’ has been introduced replacing ‘previous year’ and

‘assessment year’. The timelines and computation in the Bill are now with reference to the

financial year for which the income is liable to be taxed. It is expected that the use of ‘tax year’

will make the new Bill easier to comprehend. Further, many of the comparable tax jurisdictions

in the world are using one single term, for purpose of denoting the unit period of taxation. ‘Tax

year’ is commonly used in many countries.

With the introduction of ‘tax year’, broadly the following principles have been adopted:

i. ‘Tax Year’: Unit period of taxation. This term shall be referred in respect of all

transactions and income for that period.

ii. ‘Financial Year’: For purposes of timelines for compliance and for procedural issues.

Ans: TDS and TCS provisions have been made easier to comprehend by providing tables.

There are separate tables for payment to residents and non-residents, and where no deduction

at source is required. For example, the proposed provisions relating to TDS on rent are shown

below:

(Reference can be made to Table in proposed section 393 of the Bill)

Ans: The provisions related to Non-Profit Organizations were present at different places in

the existing Act, in section 11, section 12, section 12A, section 12AA, section 12AB, section

13, section 115BBC, section 115BBI, section 115TD, section 115TE, section 115TF. The

provisions related to approval are under the first and second proviso to section 80G (5). These

have been simplified and consolidated into one chapter. All the provisions related to registered

Non-Profit Organisations have now been arranged in Part B of Chapter XVII titled “B.––

Special Provisions for Registered Non-Profit Organisation” in the new Bill.

Ans: All the provisions pertaining to salary have been consolidated at one place for ease of

understanding so that the taxpayer does not have to refer to separate chapters for filing his

return of income. The deductions which were earlier allowed under section 10 of the Income

Tax Act,1961, like gratuity, leave encashment, commutation of pension, compensation on VRS

and retrenchment compensation, are now part of the salary chapter itself. Some of the

allowances like HRA are now provided in Schedule II of the new Bill that finds reference in

the provisions relating to salary. The objective was to improve readability by way of providing

tables and formulas.

While the chargeability of all the perquisites has been retained in the Act, their valuation,

conditions and exceptions have been shifted to Rules as they do not affect every taxpayer.

Similarly, redundant and repetitive provisions have also been removed for better readability.

Ans: Provisions relating to exemptions for specific incomes and persons are being moved to

separate schedules for easier reference and simpler compliance as follows:

An example of the Schedules is given below:

Ans: Stage 1: Bill is passed by the Parliament and becomes an Act

Stage 2: Operational and delegated legislation framework

i. Notification of new Rules and Forms.

ii. Simultaneous exercise of software development to set up the systems and

processes for various administrative and quasi-judicial functions.

Ans: Various facets of compliance for the respective years have been mentioned in the

Repeals and Savings clause in the Bill, which will safeguard all rights and liabilities accrued

under the old law.

Ans: There are no changes related to rates. Since there have been regular amendments to the

Income Tax Act, 1961 including amendments proposed in Finance Bill, 2025, the Act stands

updated from policy perspective. All amendments proposed upto Finance Bill 2025 have been

duly incorporated in the new Income tax bill 2025. Therefore, while no major policy related

changes have been made in the Bill, the above aspects have led to proposed ‘material’ changes

in the existing law.

Ans: The Income Tax Bill 2025 also contains all amendments proposed in Finance Bill 2025.

Therefore, the users are advised to compare the provisions of the Income Tax Act, 1961, as

updated with proposed amendments in Finance bill 2025, while reading the Income Tax Bill,

2025. There is, therefore, no change in the scope of ‘virtual digital asset’ under the Income Tax

Bill, 2025. The definition under the Bill incorporates the amendment already proposed under

the Finance Bill, 2025.

Ans: As noted above, the total words in the new Income Tax Bill, 2025 are around 2.6 lakhs,

as against 5.12 lakh words in the Income Tax Act, 1961. Some of the Chapters where

substantial reduction of words have been achieved are as given below: