Key Highlights
- Redesign of the tax code to make language plain and sections logical.
- Introduction of a unified "Tax Year" concept while preserving the existing financial year.
- Consolidation of TDS rules and salary‑deduction provisions into single clauses.
- No alteration to tax slabs, residency criteria, or filing deadlines.
- Effective date set for 1 April 2026, with AI‑driven compliance tools.
Detailed Insights
The government plans to introduce the Income Tax Bill, 2025, with the aim of transforming the cumbersome 1961 Act into a more navigable framework. By replacing archaic legal phrasing with straightforward terminology, the bill reduces ambiguity that often leads to litigation. One of the most visible changes is the creation of a "Tax Year" that merges the previously separate Assessment Year and Financial Year, although the calendar dates of the Financial Year (1 April – 31 March) stay the same.
Section numbering will be overhauled: for example, the current Section 139 governing ITR filing may be reassigned a new identifier, and the new‑regime provision (currently Section 115BAC) will receive a fresh reference. This re‑sequencing is intended to produce a logically ordered code, expanding from 298 sections in the old act to 536 sections in the proposed bill, supplemented by two additional schedules.
Key taxpayer‑friendly reforms include eliminating dense explanatory notes, aggregating all salary‑related deductions—standard deduction, gratuity, leave encashment—under a single provision, and simplifying depreciation calculations for businesses. TDS (Tax Deducted at Source) regulations are also unified, which will necessitate software upgrades for many enterprises.
While the bill leaves tax brackets, capital‑gains treatment, and filing timelines untouched, it imposes heftier penalties for late submissions and leverages AI for heightened scrutiny, aiming to deter evasion. The transition period runs until the start of FY 2026‑27, after which the new provisions become operative.