The Income-Tax Bill, 2025 was introduced in the Lok Sabha on 13 February 2025, seeking to replace the Income-tax Act, 1961, which has been in force for over six decades. The Bill reduces the total number of sections from 819 to 536 and chapters from 47 to 23, fulfilling the commitment made during the Union Budget 2025-26 presentation to deliver a simpler, clearer tax code. The proposed law is slated to take effect from 1 April 2026.
Background
The Income-tax Act, 1961 has been amended extensively over its six decades of operation, accumulating layers of provisos, explanations, and cross-references that have rendered the statute difficult to navigate for taxpayers and practitioners alike. Successive Direct Tax Code proposals — including the 2009 and 2017 iterations — had attempted comprehensive reform but were not pursued to enactment. The 2025 Bill draws on these prior efforts and the recommendations of multiple committees, including the Akhilesh Ranjan task force report of 2019.
The Bill was announced by Finance Minister Nirmala Sitharaman during the Budget speech on 1 February 2025, with the stated objective of aligning the tax framework with the spirit of "Nyaya" (justice) — making compliance simpler and reducing the scope for interpretive disputes.
Key Provisions
The Bill introduces the following structural and substantive changes:
Consolidation and simplification: The number of sections has been reduced from 819 to 536, and chapters from 47 to 23. Redundant provisions, spent exemptions, and obsolete references have been removed. The word count of the statute has been reduced by nearly half.
Substantive continuity: Tax rates and regimes for individuals and corporations remain unchanged from the existing framework. Most definitions have been retained, and the penalty and prosecution provisions carry forward the existing structure.
Tax year concept: The Bill introduces a unified "tax year" concept replacing the existing "previous year" and "assessment year" terminology, which has been a longstanding source of confusion for taxpayers.
Power to frame schemes: The government has proposed empowering itself to frame administrative schemes for greater efficiency, transparency, and accountability in tax administration.
Select Committee referral: Following introduction, the Bill was referred to a Select Committee of the Lok Sabha, chaired by Member of Parliament Baijayant Panda, for detailed examination and stakeholder consultation.
Implications for Practitioners
The introduction of this Bill marks the most significant structural reform of India's direct tax framework in over sixty years. While the substantive tax rates and regime architecture remain largely unchanged, the renumbering of every section will necessitate comprehensive updates to all existing legal opinions, contracts referencing specific Income-tax Act provisions, and litigation filings.
Tax practitioners should begin mapping the old section numbers to the new provisions using the concordance tables that will accompany the Bill's progression through the Select Committee. Client advisories on the transition timeline — with the proposed 1 April 2026 commencement — should be issued promptly.
The Select Committee stage presents an opportunity for the profession to make representations on provisions that may benefit from further refinement. Practitioners should monitor the Committee's proceedings and submit suggestions through professional bodies such as the ICAI and relevant bar associations.
The "power to frame schemes" provision warrants close scrutiny, as it may expand executive discretion in tax administration beyond the current statutory framework.