Parliament on Tuesday passed the Income Tax Bill, 2025, marking the most significant overhaul of India’s direct tax legislation in over six decades. The Rajya Sabha returned the Bill to the Lok Sabha with a voice vote, completing its legislative journey. The new law will formally replace the Income Tax Act, 1961, and is set to take effect from April 1, 2026, after the President’s assent.
The Bill, along with the Taxation Laws (Amendment) Bill, 2025, was introduced by Finance Minister Nirmala Sitharaman. She emphasised that the new legislation introduces no change in tax rates and is aimed at simplifying the language and structure of the existing tax code.
“I am shocked that the Opposition doesn’t want to participate,” Sitharaman said, expressing disappointment at walkouts in both Houses despite prior agreement to hold 16 hours of debate in each.
Why the Change Was Needed
Sitharaman explained that parts of the 1961 Act had become outdated, complicated by decades of amendments. The new Bill consolidates provisions to better reflect a modern economy while preserving long-standing elements like tax slabs and compliance frameworks.
Key reforms include:
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Consolidation and simplification: Reduction in sections and chapters; word count cut nearly in half.
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Clearer terminology: Replacement of “assessment year” and “previous year” with a unified term — “tax year”.
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Modern drafting: Alignment of definitions with allied laws, such as the classification of micro and small enterprises.
Key Features of the Income Tax Bill, 2025
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Simplified Structure
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536 sections and 16 schedules — easier navigation for taxpayers.
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No Change in Rates
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Existing individual and corporate tax rates retained.
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No changes to offences or penalties.
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Taxpayer Flexibility
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TDS refunds possible even for delayed return filings without penalty.
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Restored Deductions
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Reintroduction of deductions for inter-corporate dividends and pensions.
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Digital-First Approach
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Greater authority to the Central Board of Direct Taxes (CBDT) to implement technology-driven, faceless assessments.
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Reduced Litigation
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Removal of redundant provisions to cut disputes and compliance costs.
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Privacy and Enforcement Concerns
The Bill retains provisions allowing authorised officers to search premises and seize documents or assets if undisclosed income is suspected. Controversially, it permits the overriding of access codes to computers and digital devices during investigations.
While references to “virtual digital space” have been dropped in some clauses, the definition of computer systems still covers digital platforms — including emails and social media.
Tax experts warn this could raise privacy and civil liberty concerns, as officials may gain access to personal digital accounts in suspected tax evasion cases.
Political Divide Over the Bill
Opposition MPs staged walkouts in both Houses, linking their protest to wider political grievances, including electoral roll revision disputes in Bihar.
The government, however, underscored the extensive preparation behind the Bill:
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75,000 person-hours invested in drafting.
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Review by a Select Committee, which made 285 recommendations, most of which were accepted.
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Incorporation of stakeholder feedback to balance simplicity with compliance needs.
With Parliamentary approval secured, the Bill now awaits the President’s assent. Once signed into law, the Income Tax Bill, 2025 will take effect on April 1, 2026, giving taxpayers, professionals, and enforcement agencies time to adjust to the new framework.
“This is a once-in-a-generation reform that simplifies our tax laws without altering rates, while equipping the system for a technology-driven future,” Sitharaman said.
