Vishal Gupta & Shahrukh Kamal – [2025] 172 taxmann.com 77 (Article)
The Income Tax Bill 2025 represents a bold attempt to modernize and simplify India’s income tax framework by replacing the Income Tax Act, 1961 (ITA 1961), a law that has been in place for over six decades. While this overhaul is positioned as a step towards reducing litigation, improving compliance, and eliminating outdated provisions, a deeper evaluation reveals that many of the changes, while structurally significant, may not necessarily reduce the complexity of taxation in India. Instead, they shift the emphasis towards streamlined processes, enhanced enforcement, and increased digital compliance, requiring taxpayers and businesses to rethink their strategies.
Structural and Linguistic Changes – Reduction in Complexity or Merely Cosmetic?
One of the most apparent shifts in the Income Tax Bill 2025 is the simplification of legal language and restructuring of provisions. The bill reduces the word count from 5.12 lakh words to 2.60 lakh words and the number of sections from 819 to 536. Additionally, the bill removes nearly 1,200 provisos and 900 explanations, consolidating multiple provisions into more structured formats. For example, exemptions related to salary, perquisites, and capital gains are now grouped under dedicated schedules, improving readability.
However, while these changes may make the law less intimidating in terms of volume, the underlying complexity of tax provisions remains. A major concern is that while provisions have been rewritten for clarity, the legal intent remains largely unchanged, meaning that professionals still need to cross-reference the new law with ITA 1961 to understand the real implications. This creates an interim period of interpretational uncertainty, particularly where judicial precedents based on ITA 1961 may now require fresh evaluations.
Tax Year Overhaul – Simplification or Disruption?
A key structural change in the Income Tax Bill 2025 is the replacement of the “Assessment Year” and “Previous Year” with a single “Tax Year”, aligning India’s taxation system with international standards. Under ITA 1961, taxpayers had to operate with a Previous Year (the financial year in which income was earned) and an Assessment Year (the subsequent year in which income was assessed). This often led to confusion in tax filing, assessments, and litigation timelines.
A single tax year simplifies the filing process by eliminating the confusion of having separate years for income earned and income assessed. This could result in easier understanding and compliance, especially for taxpayers who may have been confused by the dual-year system. It could lead to faster assessments and reduce delays related to the gap between the earning year and the assessment year. Additionally, businesses will need to adjust tax computation models, advance tax payment structures, and software systems, all of which will require initial compliance costs.
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