a day ago
Is the new Income Tax law more accessible?
The story so far: The Income Tax Bill 2025, which seeks to replace the Income Tax Act of 1961, was passed by Parliament in the ongoing monsoon session. The Bill is significantly shorter, more concise, and has clearer legislation. However, it also incorporates some new elements that could be problematic.
Why was a new law needed?
The Income Tax Act, 1961 is outdated, and over the years has been amended numerous times, leading to income tax legislation in India being convoluted and difficult for an average citizen to understand. It also provided tax officials ample scope for harassment due to the discretion the law afforded them. In the new Bill, the number of chapters has been brought down to 23 from 47 in the Income Tax Act, 1961, and the number of Sections to 536 from 819.
Moreover, in order to provide greater clarity, the new Bill has increased the number of tables to 57 from 18 and the number of formulae to 46 from six. Most importantly, the language has been greatly simplified. Jargon has been removed as much as possible, and examples have been provided where needed.
Why was a second version of the Bill needed?
The original version of the Income Tax Bill 2025 was introduced in Parliament in February this year. However, given the importance of the legislation and the ambitious nature of what it was trying to do, it was decided to refer it to a Select Committee. The committee was headed by Baijayant Panda and comprised Members of Parliament from across political parties. The Select Committee submitted its report in July this year. It was a mammoth report, and while it retained much of the language in the new Bill, it also recommended several changes. On August 8, 2025, the government withdrew the Bill to incorporate the suggestions made by the committee. The reason for the withdrawal was to avoid confusion through multiple versions of the Bill and to provide a clear and updated version with all the changes incorporated. That new version was introduced in the Lok Sabha on August 11, 2025 and was passed the same day without debate.
What has changed in the new Bill?
Finance Minister Nirmala Sitharaman was clear from the outset that the purpose of the new legislation was to simplify and rationalise the existing law, not to change the rates or slabs through it. Those changes are made periodically by the government, such as in Budget 2025, when the income tax slabs and rates were substantially changed. Most of the changes will not impact the average income tax payer, and are more technical in nature. For example, the provisions of Minimum Alternate Tax (MAT) and Alternate Minimum Tax (AMT) have been separated into two sub-sections. However, the new law has codified some taxpayer-friendly features. For example, taxpayers can now update their income tax returns up to four years from the end of the relevant assessment year. This means mistakes can be rectified without any penalty or tax incidence. Notably, the period for which assessments could be reopened has been reduced to five years.
Are all the changes positive?
No. The provisions relating to searches by income tax officials have been tweaked to include some concerning features. The original Income Tax Act 1961 required anybody found to be in control or possession of any documents in electronic form to provide the authorised officer 'the necessary facility to inspect such books of account or other documents'. It also authorised the tax official to 'break open the lock of any door, box, locker, safe, almirah or other receptacle' in case their keys were not available.
The new law takes these concepts a step further. It now says that anybody in possession or control of electronic documents or information must not only provide the tax officer 'reasonable technical and other assistance', but also share passwords. As the law sets no limits on what electronic information the tax officer may need to assess, this means the assessee must also share passwords of social media and personal emails, if required. Further, the law also empowers the tax official to 'override the access code to any computer system' if the password is not provided.
What is the justification?
While a few members of the committee called for the dilution of these sections in their dissent notes, the Select Committee as a whole accepted the government's argument that a lot of relevant financial information is shared over messaging services or stored in personal emails, and so recommended that these sections be included.
