New Income Tax Bill 2025 vs current Income Tax Act 1961: What is really new? However, not many people are able to understand how the new tax bill is different from the current Act. Here is how the new Income Tax Bill differs from the current Act and what is really new in it
Naveen Wadhwa
Vice-President, Taxmann
During the Budget Speech on July 23, 2024, Finance Minister Smt. Nirmala Sitharaman announced a comprehensive review of the Income Tax Act of 1961. She explained that the rationale behind this move is to make the Income Tax Act concise, clear, and easier to read and understand.
#sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;} The aim is to reduce disputes and litigation, thereby providing taxpayers with tax certainty. She announced that the review would be completed within six months. During her budget speech on February 1, 2025, she stated that the Income-tax Bill 2025 would be tabled within a week. The Bill was tabled in parliament on February 13, 2025.
Reduced in volume after removal of redundant sections
When passed, the new 600+ pages Income Tax Bill will replace the 65-year-old Income Tax Act of 1961 and become a new Income Tax Act of 2025. However, the new legislation will apply from April 1, 2026. The new Income Tax Bill contains 2.56 lakh words, almost 50% fewer than half a million words in the current Income Tax Act.Despite the significant reduction in the legislation's size, the essence of the current law has been retained in the new law. The new income tax bill respects the legacy of the 1961 Act by ensuring its essence in the new bill remains the same. The new Income Tax Bill 2025 simplifies the Act structure, removes the redundant and omitted provisions of the current Income Tax Act, and replaces the Provisos and Explanations of the current Act with sub-sections, clauses, or sub-clauses in the new bill.
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More than 300 redundant provisions omitted
The new tax bill provides interesting facts compared to the current Act. The 911 sections and 11 schedules of the current Income Tax Act are restructured into 536 sections (clauses) and 16 schedules in the Income Tax Bill. The Income Tax Bill eliminates more than 300 provisions of the current Income Tax Act that have become redundant or were omitted over time, such as Section 80CCA (deduction for investment in National Saving Scheme), Section 80CCF (deduction for investment in long-term infrastructure bond), etc.New Income Tax Bill without single Proviso or an Explanation
The provisions included within 1,200+ Provisos and 550+ Explanations of the current Income Tax Act are presented as sub-sections, clauses, or sub-clauses in the new Income Tax Bill. The entire Income Tax Bill does not contain a single Proviso or an Explanation. Section 2 of the Income Tax Bill includes 112 clauses that explain all important definitions in one place, which were defined in the relevant provisions in different places of the current Income Tax Act. The words "Previous Year" and "Assessment Year" now rest in peace and are reincarnated as "Tax Year.Has a better-aligned structure accommodating all amendments
The legacy of the current Income Tax Act, with structural adjustments, has been retained in the new Income Tax Bill to prevent unsettling of the current Income Tax Act. This has been as current tax laws have gained certainty after thousands of amendments through 80+ Finance and Amendments Acts.The provisions for the taxation of charitable trusts, amended by more than 20 Finance Acts since 1961, have found a successor, a new name, and a dedicated chapter in the new Income Tax Bill, 2025. Chapter XVII-B of the new Income Tax Bill 2025 encompasses all provisions related to non-profit organisations in one place, including registration, computation, accreted tax, and more.
Higher number of schedules brings greater clarity
The new Income Tax Bill has 16 schedules, compared to 11 in the current Income Tax Act. These schedules contain provisions that were previously covered under sections of the Income Tax Act, 1961.One schedule specifies conditions for eligible investment funds and fund managers; six schedules provide a list of incomes exempt from tax (corresponding to section 10 of the Income Tax Act, 1961), one schedule specifies conditions for exemption to political parties and electoral trusts, while five schedules pertain to profits and gains from business or profession, including two new schedules that address agricultural boards.
One schedule explains deductions allowed under Clause 123 (corresponding to Section 80C of the Income Tax Act, 1961), another outlines the rules related to recognised provident funds or approved superannuation funds or gratuity funds, and the final schedule details the forms and modes of investment or deposits permitted for charitable and religious trusts (corresponding to section 11(5) of the Income Tax Act, 1961).
How charging, clubbing and sett-off provisions are arranged
Both the Income Tax Act and the new Income Tax Bill 2025 outline their respective definitions in Section 2. Under the new Income Tax Bill, the charging provisions are covered in Clause 15 (income from salary), Clause 20 (house property), Clause 26 (business or profession), Clause 67 (capital gains), and Clause 92 (other sources). Clubbing provisions are addressed in Clauses 96 to 100, while Clauses 108 to 121 govern the set-off and carry forward of losses.How deductions, taxation of NRI, foreign companies and NGO is addressed
Deductions are explained in Clauses 122 to 154, and transfer pricing regulations are codified in Clauses 160 to 177. Special tax rates are stipulated under Clauses 190 to 198, and new tax regimes are introduced in Clauses 199 to 205. The taxability of non-residents and foreign companies is covered in Clauses 207 to 220, whereas Clauses 263 to 286 outline procedures for income returns and assessments, supplemented by search-related assessment provisions in Clauses 292 to 301. A newly introduced Chapter XVII-B (Clauses 332 to 355) specifically addresses the taxability of non-profit organisations. Appellate mechanisms are outlined in Clauses 356 to 374.Consolidation of TDS and TCS clauses
Notably, while the current Income Tax Act, 1961 features over 65 provisions for Tax Deducted at Source (TDS) and Tax Collected at Source (TCS), the Income Tax Bill consolidates these into nine Clauses (390 to 398). Lastly, penalties and prosecutions are detailed in Clauses 439 to 498 of the Income Tax Bill.(The article is written by Naveen Wadhwa, chartered accountant and Vice President at Taxmann.) #sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;} (Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
This story originally appeared on: India Times - Author:Faqs of Insurances
