In FAQs released on Thursday, the Income Tax Department said the Bill is straightforward, clear, and easier to understand, with more than 57 tables compared to 18 in The Income-tax Act, 1961. Details that are of direct interest to taxpayers, including deductions, TDS/ TCS rates, and exemptions have been provided in tabular form.

It is shorter — all provisos (about 1,200) and explanations (about 900) have been removed, the word count almost halved to 2.60 lakh from 5.12 lakh, and all redundant provisions, including those for capital gains, deductions, and dispute resolution that have seen amendments over the years, omitted.

There is no major change in the direct taxation structure, ensuring continuity and stability. The Bill differs from the existing Act in one significant way: while it specifies deductions for rent paid, life and health insurance premia, contribution to provident fund, and home loan among others, it does not provide a table for the tax rates for the old tax regime. Tax slabs in the new tax regime are provided in tabular format.

Aspects of the Bill

SHORTER, SIMPLER

🔴 The Bill is 622 pages long, about 24% shorter than the 823-page Income-tax Act (updated until 2024). There is a focus on simpler language.

🔴 There are 23 chapters, fewer than half the 47 chapters in The Income-tax Act. There are 16 schedules, two more than in the Act.

🔴 There are 536 sections in the Bill, compared to the 819 effective sections in the Act. The Act mentions only 298 sections, however; over the years, new sections were numbered in continuation with existing sections. For example, provisions relating to tax in special cases were inserted as part of the 115 series, viz., 115 AC, 115AD, 115JB, 115VP, etc., the government said.

TAX YEAR, NO AY

🔴 The Bill introduces the concept of “tax year”, which has been defined as the 12-month period beginning April 1.

In case of a business or a newly-set-up profession, the tax year will begin from the date it was set up, and will end with the said financial year. Income tax will be levied on the basis of the economic activity and income earned in a tax year.

🔴 At present, income tax has the concept of “assessment year” (AY), which assesses tax on income earned in the “previous (financial) year”. For instance, income earned in the financial year (FY) 2024-25 (April 1, 2024 to March 31, 2025) is assessed in AY 2025-26 (beginning April 1, 2025).

🔴 Prior to 1989, the concepts of “previous year” and “assessment year” were there because taxpayers could have different 12-month previous years for each source of income.

From April 1, 1989, the previous year was aligned to the FY in all cases. However, AY continued to be used for various proceedings under the Act. Thus, a taxpayer had to track two different periods, the previous year and the AY, the FAQs say.

SOCIAL MEDIA ACCESS

“Virtual digital space” has been defined in the powers to call for information by income tax authorities during surveys, searches and seizures to include email servers, social media accounts, online investment, trading and banking accounts, remote or cloud servers, and digital application platforms.

CRYPTO AS PROPERTY

🔴 Virtual digital assets such as cryptocurrencies have been included in the definition of property to be counted as a capital asset of the assessee along with existing categories of immovable property such as land and building, shares and securities, bullion, jewellery, archaeological collections, drawings, paintings, sculptures, and any work of art.

🔴The Income Tax Department said there is no change in the scope of ‘virtual digital assets’ under the Income-tax Bill, 2025. The definition under the Bill incorporates the amendment already proposed under the Finance Bill, 2025.

DISPUTES RESOLUTION

🔴 The section on Dispute Resolution Panel (DRP) in the Bill provides the points of determination, decision, and the reasons behind it, marking a shift from the earlier section, which lacked clarity on the manner of issuing DRP directions.

CAPITAL GAINS EXEMPTIONS

🔴  Section 54E of the Act, which details exemptions for capital gains on transfer of capital assets prior to April 1992 has been removed in the Bill. Deductions have been streamlined, and outdated exemptions removed.

🔴 Deductions from salary such as standard deduction, gratuity, and leave encashment have been detailed in tabular form.

Income and tax rates

The scope and definition of income has been expanded to include evolving income sources. Exempt income, conditions for claiming exemptions, deductions, TDS and TCS (tax collected at source), have been provided in tabular form in separate schedules for better understanding.

Income tax slabs announced in any year’s Budget will be included in the Finance Act of that year. As of now, the income tax rates announced in Budget 2025-26 have been included in the Income-tax Bill.

Tax experts said the simplified language and concise form will help taxpayers understand the income tax provisions better. The multiple cross-referencing among sections and rules currently often give rise to complications and disputes.

“In addition to removal of ‘provisos’, ‘explanation’, and redundant provisions, formulae, tables, and structures have been used to enhance clarity in the new bill. To the extent possible, provisions involving the same issues, which were present in different chapters in the current Act, have now been consolidated. Redundancy has been removed and definitions at multiple places have been consolidated,” the tax department said in its FAQs.

Road to the new Bill

The proposed Bill follows the government’s announcement in the Interim Budget presented in July 2024. Finance Minister Nirmala Sitharaman had said a comprehensive review of the Income-tax Act, 1961 would be completed in six months.

In her Budget speech on February 1 this year, Sitharaman said the government had earlier replaced the Bharatiya Danda Sanhita with the Bharatiya Nyaya Sanhita, “and the new income-tax bill will carry forward the same spirit of nyaya”.

The Bill, she said, would be close to half the size of the existing law in terms of both chapters and words, and would be simple to understand, leading to tax certainty and reduced litigation.

However, tax experts pointed out that the new Bill lacks any major tweaks in penalty or compliance provisions; by removing the redundant provisos and explanations, it has mainly only made the law more concise.

The government has attempted to simplify the Income-tax Act on several occasions previously. In 2018, a task force was formed to draft a new direct tax law that submitted its report in 2019.

The UPA government had proposed a Direct Taxes Code (DTC), and a draft Bill was tabled in Parliament in 2010. After review by the Standing Committee, the draft was revised twice, in 2012 and 2014, but it lapsed with the dissolution of the 15th Lok Sabha.

The new Bill will go to a Parliamentary Committee, after which it will return to the government. After a call is taken on including any proposed amendments, the government will decide the date for rolling out the new income tax law.