By Gouri Puri and Ritvij Ratn Tiwari
For over six decades, India’s corporate tax landscape has been governed by the Income Tax Act of 1961 (Act). Over time, this foundational legislation became exceptionally complex; the Act has undergone nearly 4,000 amendments, in the form of changes through the annual Finance Act for more than 60 years and 19 specific Taxation Laws Amendment Bills.
Navigating this framework required specialized skill, forcing tax teams to assemble their compliance obligations from fragmented sources. The government’s recent move to consolidate all 285 Select Committee changes into a single, revised Income Tax Bill represents a significant shift from this complexity towards clarity.
This reform followed a meticulous legislative process: the initial bill was introduced in the Lok Sabha on February 13th, 2025, and referred to a Select Committee. After the committee conducted a holistic, clause-by-clause examination of all sections and submitted its report on July 21st, the government accepted nearly all recommendations and withdrew the original bill on August 8th. A new, comprehensive bill was then introduced and passed on August 11th, 2025, creating a single, authoritative text for direct tax laws, set for an April 2026 rollout.
The reform was driven by a comprehensive effort to simplify the tax code to reduce litigation and ease compliance burdens. The simplification exercise was carefully managed to improve textual and structural clarity without altering major tax policies or rates, thereby ensuring continuity and predictability for taxpayers.
To achieve this, the approach focused on eliminating intricate language, removing repetitive and redundant provisions, and reorganizing sections logically for a more coherent framework. The scale of this consolidation is significant; the new bill reduces the number of Sections from 819 in the 1961 Act to 536 and the number of chapters from 47 to 23.
This approach aligns with the principles of modern public finance, as economists like Joel Slemrod have highlighted that legislative complexity directly increases compliance costs. When a law is convoluted, it creates room for interpretation, which can lead to disputes. A simpler legislative text, therefore, promotes voluntary compliance by making the law’s intent clear and accessible.
This focus on simplicity resulted in several practical changes. The bill, as originally envisioned, introduced foundational simplifications such as the elimination of the dual concepts of ‘previous year’ and ‘assessment year’, replacing them with a single, intuitive ‘tax year’. It also achieved clarity through significant structural consolidation.
The provisions for Tax Deducted at Source (TDS) were greatly simplified, with the number of sections reduced from 69 to just 13, and rules for Non-Profit Organizations were consolidated into a single chapter. This was part of a broader rationalization that removed approximately 90 redundant sections, including entire chapters on obsolete laws like the Fringe Benefits Tax.
Building on this, the Select Committee’s recommendations, which were largely accepted, focused on correcting drafting anomalies and enhancing taxpayer rights. There were other crucial taxpayer-friendly alterations including facilitating refunds on delayed ITR submissions, allowing for the discretionary waiver of penalties for unintentional non-compliance, and providing for the issuance of ‘Nil’ tax deduction certificates.
For the corporate sector, the committee advocated for reinstating the inter-corporate dividend deduction, which was absent in the initial draft, and proposed a revised definition of “beneficial owner” to enable the carry-forward of losses.
Furthermore, the committee pushed for precise definitions to minimize interpretational disputes, such as those for Non-Performing Assets (NPAs) and “parent company,” ensuring the final bill was not only simpler but also more robust and equitable.
By providing a finalized legislative base well in advance of its April 2026 implementation, the government has afforded corporations valuable time to prepare. This period of stability allows businesses to transition from a reactive to a proactive compliance posture. Companies can now undertake upgrades to Enterprise Resource Planning (ERP) systems, re-engineer internal financial workflows, and invest in comprehensive training for their teams.
To ensure a smooth transition, the Finance Ministry has clarified that existing circulars and notifications will apply to the equivalent clauses in the new Act. However, new rules and forms will be prescribed where necessary to support the new framework. With the rules clearly defined, corporations can look beyond compliance towards strategic opportunities, making long-term decisions on business structures and major investments with greater confidence. This unified bill is a foundational reform that establishes the certainty and predictability essential for a modern economy and is set to reshape corporate compliance in India.
(Gouri Puri is Partner and Ritvij Ratn Tiwari, Associate, at Shardul Amarchand Mangaldas & Co.)
Views are personal and do not represent the stand of this publication.
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