New IT Bill Minimizes Scope Of Litigation, Simplifies Provisos

New IT Bill Minimizes Scope Of Litigation, Simplifies Provisos

Finance Minister Nirmala Sitharaman had placed the Bill in the Lok Sabha, informing about ‘substantial changes’

The Income Tax Department has stated that the new simplified Income Tax Bill introduced in the Parliament, is comparatively half the size of the Income Tax Act, 1961.

While minimizing the scope of litigation and fresh interpretation, its word count of 2.6 lakh is lower than the previous one comprising 5.12 lakh words. Similarly, while the sections have been reduced from 819 to 536, the chapters have been halved to 23 from 47.

The FAQ issued by the IT department said that the Income Tax Bill 2025, has 57 tables, compared to 18 in the existing Act and 1,200 provisos and 900 explanations have been removed.

Introducing the Bill in the Lok Sabha, Finance Minister Nirmala Sitharaman informed about "substantial changes".

Following the introduction, the bill was referred to Lok Sabha’s select committee and directed it to submit the report by 10 March.

The provisions in the Bill on exemptions and TDS/TCS are crispier and have been incorporated in a tabular format. The chapter on not-for-profit organizations is comprehensive and uses simple language. Therefore, the length is reduced to 34,547 words.

A conscious effort was made to minimize the scope of litigation and fresh interpretations on the principles of Tax Certainty on various sections of international taxation.

Additionally, keywords and phrases, especially where courts have given rulings, have been retained with minimal modifications.

The FAQ further read that while ‘no major policy-related changes’ or tax rates changes were made, ‘material’ changes are being proposed in the existing law.

The Bill has consolidated provisions of salary, providing the taxpayers the ease and not referring to separate chapters for filing the Income Tax Return (ITR).

The aspects of deductions - gratuity, leave encashment, commutation of pension, compensation on VRS and retrenchment, are now a part of the chapter on ‘salary’.

The FAQ stated, "The drafting style of the new Bill is straightforward and clear, making the provisions easier to understand. The tables minimize cross-references and conflict by aggregating applicable provisions to a single scenario.”

A significant feature of the Bill is the elimination of the concepts of ‘previous year’ and ‘assessment year’.

Earlier, the taxpayer had to track two different periods, making it difficult to comply with the provisions. The new taxpayer had to keep track of the different periods along with the ‘financial year’. Such provisions have been consolidated.

The provisions on non-profit organizations have been combined and structured into seven sub-parts.

The current IT Act, enacted in 1961, was effective from 01 April 1962. It has been amended 65 times with over 4,000 amendments.

Therefore, concerns were raised over the buildup of amendments, intricate language, detailed provisions, redundancies and the heavy structure of the Act. Hence, the government decided to introduce a new law.

Consultations were held with various stakeholders, including Australia and the UK, where tax laws were rewritten. About 20,976 online suggestions were received.

References were drawn from the Direct Taxes Code, 2009, and the government’s 2019 report constituted a six-member committee to redraft the law.

The FAQ stated that 150 officials of the IT department were involved in drafting the 2025 Bill, dedicating over 60,000 man-hours.