6 Things Likely to Change in the New Income Tax Bill 2025

The new Income Tax Bill will be simple to understand for taxpayers and tax administration, leading to tax certainty and reduced litigation.

The finance minister is likely to introduce the new Income Tax Bill 2025 in parliament today. Once passed, it will replace the 64-year-old Income Tax Act 1961 and will be called Income Tax Act, 2025, taking effect from April 1, 2026.

Here are the likely changes to be made in the New Income Tax Bill.

1. Introduction of the 'Tax Year' Concept Instead of Assessment Year

Currently, taxpayers get confused with the term 'Assessment Year' (AY). It is the ensuing Financial Year (FY) in which the income of the assessee is assessed for the previous year relevant to the financial year. For example, for FY 2024-25, the AY is 2025-26.

So, instead of having complicated terms or semantics, it is likely that a simple and single merged concept of a 'Tax Year' exists in the new Bill in line with international practice. This shall help to ease the interpretation for assessees for the tax to be filed (using the relevant Income Tax Return form) and other compliances.

The tax year is defined as the twelve months of the financial year commencing on the 1st of April. In case of a new source of income coming into existence or income from a business or profession set up during the financial year, the tax year shall begin from such date of income coming into existence or the date of setting up the business or profession.

It is vital to note that with the introduction of the concept of 'Tax Year' there shall be no change in the definition of the financial year. It will start on 1st April and end on 31st March, as is the case at present.

2. Alterations or Changes in Sections

The New Income Tax Bill will see changes or alterations in the Sections in a bid to simplify the current income tax laws.

The present Income Tax Act, 1961, is divided into 23 chapters and 14 schedules with a total of 298 Sections. The new Income Tax Bill is expected to contain 536 sections, 23 chapters, and 16 schedules. Now, while there are a greater number of Sections under the new Bill, it is said to contain only 622 pages, whereas the old act contains 890 pages. (including index). Moreover, the language of the new Income Tax Bill is simplified compared to the present.

3. Ease of Look-up and Interpretation

The new Income Tax Bill is expected to follow a structured approach to tax administration. For instance, as per some media reports, the deductions and exemptions available to salaried individuals, viz. standard deduction, leave encashment, gratuity, etc., will now be tabulated in one place instead of being scattered with different sections and rules as at present all over under the Income Tax Act, 1961.

4. Remuneration Received by Partner Will Not Be Considered Salary

The new Income Tax Bill defines 'salary' under Chapter 4, clause 15 to include:

• wages;

• any annuity or pension;

• any gratuity;

• any fees or commission;

• perquisites;

• profits in lieu of, or in addition to, any salary or wages;

• any advance of salary;

• any payment received by an employee in respect of any period of leave not availed of by him

There is no change from the existing act. Currently, the salary received by the partner is also taxed under the head 'Income from Salary'.

However, now according to the new Bill, "Any salary, bonus, commission, or remuneration, by whatever name called, due to, or received by, a partner of a firm from the firm shall not be regarded as salary for the purpose of Section 15(4)."

5. Ease in Tax Compliance

Also, to ensure that tax compliance by way of Tax Deduction at Source (TDS) happens, all the TDS-related sections are said to have been brought together under a single clause with simple and easy-to-understand tables.

That being said, after the Bill is passed it would call for a lot of changes in the TDS-related forms for reporting purposes.

6. Payment by Taxpayers with Pending Appeal

If the assessee or taxpayer has a pending appeal in the High Court or Supreme Court, then as per the new Income Tax Bill, it cannot be the basis of non-payment of tax dues.

Here's what Chapter 18, clause 369 of the new Income Tax Bill says, "Irrespective of the fact that an appeal has been preferred to the High Court or the Supreme Court, tax shall be payable as per the assessment made in the case."

Here's what has not changed...

Residency Status

The New Income Tax Bill 2025 has not touched the laws defining residency, i.e. classifying an individual assessee into Ordinary Resident (OR), Non-Ordinary Resident (NOR), and Non-Resident (NR). There was a need to relook at the provisions of the residency laws because it requires the assessee to look back 10 years to determine his/her residential status.

Financial Year

As mentioned earlier, while the Tax Year concept is introduced, there is no change in the definition of the Financial Year. It remains unchanged, i.e., it starts on 1st April and ends on 31st March.

Income Tax Slab and Capital Gains

Pursuant to the changes made in the income tax slabs under the New Tax Regime (which is the default regime) in the Union Budget 2025-26 and the capital gain tax rate in July 2024, there are no changes in these respects proposed in the new Income Tax Bill.

ITR Filing Deadline

The due date for filing ITR for various types of assessees is also unchanged as at present.

To conclude:

After the Direct Tax Code idea was first proposed in 2009, there were many expectations from the Modi-led-NDA government that often boasts of 'Ease of Doing Business' and 'Ease of Living' among other things.

But the new Income Tax Bill 2025 seems to have belied those expectations. While it may have reduced the number of pages with consolidation, simplification, and presentation of tables where necessary, it broadly seems to be an old wine in a new bottle. Perhaps the focus is only on altering certain sections or provisions with no major changes. It does not seem to simplify the Income Tax per se as much as was promised in the Budget 2025 speech.

"In this world nothing is certain but death and taxes." - Benjamin Franklin.

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