New Income Tax Bill: Preliminary Observations

by CA. Sandeep Choudhary

63662 57036

sandeepchoudharyfca@gmail.com

Draft of the new Income Tax law is out now. My preliminary observations:

1. The new Income Tax Bill, 2025 is expected to come into effect from 1st April 2026. Unlike the earlier effort of 'Direct Tax Code' 15 years ago, this is essentially a re-writing and re-arranging of the existing provisions of the Income Tax Act, 1961. 

There is no new levy, heads of income are the same, the due dates, computation and details are the same. 

The re-writing is welcome. The law had become very clumsy over time, as it is amended at least once every year. 

It is also a missed opportunity, a lot of language could have been simplified.

2. The useless terminology of 'assessment year' and 'previous year' is being junked in favour of 'tax year'. This is a welcome change, there was never a good reason for having these two terms.

3. Filing of ITR to be mandatory for business with TURNOVER above 5 Lakhs under the new Income Tax Bill. So, no tax upto income of 12 Lakhs. But if your sales exceeds 5 Lakhs (income of Rs. 40k annually using the presumptive income rule), you must file ITR.

4. For salaries, the tax provisions in the 1961 Act are scattered all over the place: some provisions are given under the head 'Salaries', some under section 10 (Exemptions) while others are given under separately issued Income Tax Rules, 1962. Now, everything has been put together in one table.

5. Some long-winding provisions, such as Cost of Acquisition, TDS, Advance Tax have been put in a tabular form. This is better than the existing arrangement, though the tables are still clumsy. There are small changes in unexpected places. A thorough clause-by-clause word-by-word comparision is required even if it is an exercise in re-writing and re-arranging sections.

6. The 1961 Act will not be completely dead. One of the goals of the Govt was to reduce the number of words in the new Bill. So, in many places, they say that this thing will be governed by 1961 Act. Completely reduces the number of words here, but now you need to refer to 2 laws.

a. The Bill defines income to include, inter alia, income referred to under section 2(24) of Income Tax Act, 1961. This is just lazy. What stops the draftsmen from copy-pasting the whole definition? 

b. For tax breaks to industrial undertakings engaged in infrastructure, the Income Tax Bill says that deduction as per old section 80-IA will continue to be available, "as if the said Act had not been repealed". If that is how you want to proceed, then why repeal in the first place.

c. Similarly, sections 80-IA, 80-IAB, 80-IB, 80-IBA, 10AA of the 1961 Act will remain undead "as if the said Act had not been repealed".

d. Many provisions simply give reference to 1961 Act: list of approved institutions for deduction of interest on educational loan, definition of hotels and convention centres, UTI administrator, reconstituted plot in Andhra Pradesh Capital City. These are NOT transitional provisions. The draftsmen had a target for number words and just said, 'yeh cheej purana wala mein padh lo'.

7. You may have heard that Explanations and Provisos have been eliminated. All that has happened is one of the two things:

a. They have been converted into clauses. 

b. The words 'Explanation' and 'Provided that' have been replaced by the word 'where'. This does not simplify the language. It merely makes the sentences longer and clumsier.

Tweet