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As compared to the Income Tax Act, 1961, the new Income Tax Bill 2025 proposes to remove proviso and explanations, and wherever necessary, tables have been inserted in to make it more clear and legible.
Income Tax Bill, 2025, Vs Income Tax Act, 1961.
New Income Tax Bill 2025 Vs Old Income Tax Act, 1961: Finance Minister Nirmala Sitharaman on Thursday introduced the new Income Tax Bill, 2025 in Parliament. The bill seeks to simplify the language of the law, introducing tables and formulas to replace the complicated legal language. Connected provisions have been brought together at one place and one can determine tax liability based on his nature of business.
One passed, the Income Tax Bill, 2025, will replace the existing Income Tax Act, 1961.
The PDF of the Income Tax Bill 2025 can be downloaded from here: https://sansad.in/ls/legislation/bills.
Suresh Surana, a Mumbai-based chartered accountant, has shared his insights on the Income Tax Bill 2025 and how it is different from the Income Tax Act, 1961.
1. Income Tax Bill 2025 Vs Income Tax Act, 1961: An Overview
The Income Tax Bill 2025 is proposed to be effective from April 1, 2026, and would comprise of 536 sections, which are spread over 23 chapters and 16 schedules. The quick overview of the Income Tax Act, 1961, and the Income Tax Bill 2025 framework is as under:
| Particulars | Income Tax Act 1961 | Income-Tax Bill 2025 |
|---|---|---|
| Effective Date | Currently Applicable | Expected Effective Date: April1, 2026 |
| No of Sections | 1 to 298 (819 Effective Sections) | 1 to 536 |
| No of Chapters | Chapters I to XXIII | Chapters I to XXIII |
| Schedules | I to XIV | I to XVI |
| Pages | 823 pages | 622 pages |
Further, as compared to the Income Tax Act, 1961, there has been a significant effort made to remove the proviso, explanations contained in the sections and wherever necessary, tables have been inserted to make it more clear and legible. For instance, the meaning of “agricultural land” as contained in the existing Act was quite complex as it was in a para format. Now under the new income tax bill, an effort has been made to tabulate certain part of the wordings, to make the meaning of “agricultural land” easier to comprehend.
Apart from this, the word ‘notwithstanding’ has been removed from the Act. It has been replaced with ‘Irrespective of’ under the new Income Tax Bill 2025 to make it easy to understand.
2. ‘Tax Year’ has replaced the concept of ‘assessment year’ /’previous year’
The term ‘tax year’ has been defined under Section 3 of the Income Tax Bill 2025 to mean the 12 months period of the financial year commencing on the April 1. Further, in case of a business / profession newly set up, or a source of income newly coming into existence in any financial year, the tax year shall be the period beginning with (a) the date of setting up of such business or profession; or (b) the date on which such source of income newly comes into existence, and in both cases ending with the said financial year.
In the new Income Tax Bill 2025, the term ‘tax year’ has replaced the terms such as ‘Assessment Year’ or ‘Previous Year’ under the Income Tax Act, 1961, which in many cases were misconstrued by the taxpayers.
3. No changes in tax rates
It is notable that there has been no change proposed in the Income Tax Bill 2025 with respect to the tax rate structure. The focus of the Income Tax Bill 2025 is to streamline the framework of the Income Tax regulations to make it user-friendly and clear.
4. No changes in the residential status
With respect to the residential status determination, there is no substantive change in the provision as per the New Income Tax Bill 2025.
– In the new Bill, the determination of residential status is also contained in Section 6 and has been rephrased without any change in the meaning
– Sub-clauses have been renumbered: For instance, deemed residency u/s 6(1A) of Income-tax Act 1961 is now contained in section 6(7) of the Income Tax Bill 2025
– Further, there is no substantive change in the determination of residential status in case of other assessees such as Companies, HUFs, etc which are contained in Section 6 of the Income Tax Bill 2025.
– Only change seems to be ‘previous year’ is replaced with ‘tax year’.
5. No change in the heads of Income
Currently under the Income Tax Act, the income chargeable to tax is classified under five different heads of Income. It was expected that there could be certain change in the heads of Income. However, on perusal of the Income Tax Bill, it is notable that no change has been made with respect to the heads of Income and it has been retained as under:
– Salaries
– Income from house property
– Profits and gains of business or profession
– Capital Gains
– Income from Other sources
6. Separate Rules to be Prescribed under the Income Tax Bill 2025
Currently, the provisions of the Income Tax Act, 1961, are to be read along with the ITR in many cases. For instance, Rule 8D of the ITR provided for computation of expenditure (which is disallowable) in relation to exempt income as provided in Section 14A of the ITA. Further, there are certain valuation rules prescribed under Rule 11UA for valuation of assets (including shares of listed, unlisted companies). There are also rules prescribed under the current ITR with respect to valuation of perquisites, etc.
As per the Income Tax Bill 2025, in many cases, it has been mentioned that rules would be prescribed under the Income Tax Bill 2025. Further, section 2(80) defines “prescribed” to mean prescribed by Rules made under this Act. As such, we also need to separately await the rules under the new Income Tax Bill 2025 which would provide more clarity on the operational aspects, such as perquisite valuation, disallowance of expenditure incurred to earn exempt income, valuation rules, etc.
7. Section 10 of the Income Tax Act, 1961, now separately covered in Schedule II to Schedule VII of the Bill
Section 10 of the Income Tax Act, 1961, which provided for exemption of certain income such as agricultural income, share of profit from partnership firm, family pension, scholarships, certain interest on NRE / FCNR deposits, short stay exemption, etc, has now been covered separately in Schedule II to Schedule VII of the Income Tax Bill 2025 in a tabular format. This presentation in the Bill would make it easier for the layman to refer the specific schedule applicable in their case to determine whether any specific income is exempt or not.
8. Provisions of TDS and TCS applicability consolidated in a tabular manner
Under the existing Income Tax Act, 1961, there are several Sections such as 194A (Interest), 194I (Rent), 194J (Professional fees, Fees for technical Services, Royalty payment), 194H (Commission), 194C (Contracts), etc. Most of the sections had similar provisions except for the applicable tax rates, thresholds, etc.
Under the new Income Tax Bill 2025, the issue of overlapping and almost similar provisions of TDS was addressed by covering the TDS provisions (except salaries) under Section 393 of the ITB in a concise and tabular manner. Further the provisions of TDS on salary contained in Section 192 of the existing Act has been covered in Section 392 of the new Bill. Similarly, the provisions of TCS contained in Section 206C of the Act has been covered in a tabular manner in Section 394 of the Bill for ease of reference. This is a welcome move and would make the TDS / TCS provisions easier to understand and would help in better compliance, avoid tax leakages and ensure administrative ease.
9. Provisions of withholding tax on payments to non-residents
Currently, Section 115A of the Income Tax Act, 1961, provides for the applicable tax rates on certain payments to non-residents such as towards royalties, fees for technical services, dividends, interests, etc, and the rates applicable is 20 per cent under the Income Tax Act, 1961, (subject to the benefit available under the DTAA). On perusal of the Income Tax Bill 2025, it is notable that similar provisions have been covered in Section 207 of the Bill wherein the tax rates are tabulated for ease of reference and further that no substantive change is proposed in the rate structure.
