New Income Tax Bill to be introduced next week, says FM Sitharaman

Finance Minister Nirmala Sitharaman on Saturday announced that the government will introduce a new income tax Bill next week to ease compliance burden.  

 

“The new Bill will be clear and direct in text with close to half of the present law, in terms of both chapters and words. It will be simple to understand for taxpayers and tax administration, leading to tax certainty and reduced litigation,” SItharaman said in her FY26 Budget speech.

 

The minister had previously announced in July last year that a comprehensive review of the Income Tax Act of 1961 would be completed within six months.

 

In light of this, the Central Board of Direct Taxes (CBDT) established an internal committee to oversee the review process. Additionally, 22 specialised sub-committees were formed by the government to examine various aspects of the Income Tax Act.

 

The Income Tax Act of 1961 currently consists of approximately 298 sections and 23 chapters, covering direct taxes such as personal income tax, corporate tax, securities transaction tax, as well as gift and wealth tax.

 

In addition, Sitharaman introduced a new presumptive taxation regime for non-residents providing services in India’s electronics manufacturing sector.

 

Under the proposed amendment, Section 44BBD will be added to the Income Tax Act. This will deem 25 per cent of the total amount received or payable to non-residents for their services or technology as "profits and gains from business".

 

This will result in an effective tax rate of less than 10 per cent on gross receipts, making taxation simpler and more predictable for foreign entities.  

 

The initiative is part of India's strategy to make the country a global hub for Electronics System Design and Manufacturing (ESDM). The Ministry of Electronics and Information Technology (Meity) has already rolled out schemes to develop semiconductors and display manufacturing facilities, for which non-residents will provide critical technology and support services. The new taxation scheme will take effect on April 1, 2026, applying to the assessment year 2026-27 and beyond. 

 

Sandeep Sehgal, partner-tax, AKM Global, a tax and consulting firm, said this measure may work as a big push for the industry and help bring technology and quality support in India.

 

Further, the time limit for filing updated returns for any assessment year has been increased from the existing 2 years to 4 years.

 

The government introduced a host of amendments through the finance Bill, including a retrospective amendment in the CGST Act, replacing "plant or machinery" with "plant and machinery," effective from July 1, 2017. This change will formally restrict input tax credit (ITC) on construction costs, directly nullifying the Supreme Court’s ruling in the "Safari Retreats" case. 

 

“The insertion of a clarificatory explanation reinforces the retrospective nature of this restriction, despite contrary judicial pronouncements. The move is expected to impact industries relying on ITC for infrastructure development, such as real estate, warehousing, and leasing. Given the history of legal scrutiny on retrospective amendments, this change could face constitutional challenges in courts,” Saurabh Agarwal, Tax Partner, EY said.