New Income Tax Law to Replace 1961 Act: What It Means for Taxpayers

The Indian government is set to overhaul the country’s tax framework with the introduction of the Income-Tax Bill, 2025, replacing the Income-Tax Act, 1961. This landmark legislative change, effective from April 1, 2026, is designed to simplify tax laws, enhance compliance mechanisms, and prevent tax evasion.

The bill proposes a modernized and transparent taxation system, ensuring ease of understanding and seamless implementation for taxpayers and authorities alike.

Key Highlights of the Income-Tax Bill, 2025

Expanded Structure and Revised Provisions

The new Income-Tax Bill introduces 16 schedules and 23 chapters, compared to 14 schedules in the existing law, offering a more structured and clear tax framework. Key aspects covered in the bill include:

• Definition of taxable income: Covers income from salaries, business profits, capital gains, and foreign earnings.

• Residency status rules: Clarifies tax obligations for individuals and businesses operating within and outside India.

• Exemptions and deductions: While charitable trusts and political parties retain exemptions, specific provisions outline deductions for salaries, rent, and employee welfare expenses.

Simplified Tax Structure & Digital Compliance

One of the primary objectives of the new law is to make taxation simpler, transparent, and taxpayer-friendly. The bill restructures tax sections, making them more accessible and easier to interpret. Other major changes include:

• Mandatory electronic filing: Ensuring faster, paperless tax compliance.

• Expanded tax audit requirements: Strengthening oversight on financial reporting.

• Digitized documentation: Reducing paperwork and manual interventions in tax filings.

Faceless Assessments and Dispute Resolution

The bill emphasizes reducing bureaucratic hurdles by introducing faceless assessment and dispute resolution mechanisms. This approach is aimed at:

• Eliminating unnecessary human intervention in tax assessments.

• Reducing litigation by streamlining dispute resolution procedures.

• Enhancing efficiency in addressing taxpayer grievances.

Stricter Anti-Tax Avoidance Measures

To curb tax evasion and ensure fair taxation, the bill strengthens:

• General Anti-Avoidance Rules (GAAR): Reinforced to monitor tax avoidance strategies.

• Transfer pricing regulations: Stricter compliance measures for multinational corporations and cross-border transactions.

New Tax Regime to Become Default Choice

The bill is expected to omit references to the old tax regime, making the new tax regime the default option. However, taxpayers will still have the flexibility to opt for the old tax regime if preferred.

Impact of the New Income-Tax Bill on Taxpayers

The Income-Tax Bill, 2025, is poised to revolutionize India’s tax landscape by:

• Encouraging compliance through digital reforms.

• Providing clear and structured taxation guidelines.

• Reducing bureaucratic delays in tax assessments.

• Enhancing government oversight on tax avoidance.

Conclusion

With its focus on transparency, digital compliance, and efficient tax administration, the Income-Tax Bill, 2025, marks a major shift in India’s taxation framework. By introducing modernized provisions and leveraging technology, the new bill aims to make tax compliance simpler, faster, and more effective for both taxpayers and the government.