The new Income Tax Bill FAQs: I-T department answers key questions

The simplified Income Tax Bill, which is half the size of the 1961 Income Tax Act, seeks to achieve tax certainty by minimising the scope of litigation and fresh interpretation, the Income Tax department said on Thursday.

The new bill, introduced in the Lok Sabha, has a word count of 2.6 lakh, lower than 5.12 lakh in the I-T Act. The number of sections is 536, as against 819 effective sections in the existing law. 

The number of chapters has also been halved to 23 from 47, according to the FAQ issued by the I-T department.

The Income Tax Bill 2025, has 57 tables, compared to 18 in the existing Act and removed 1,200 provisos and 900 explanations. 

Finance Minister Nirmala Sitharaman, while introducing the Bill in the Lok Sabha, had said that "substantial changes" have been made in the Bill. The number of words have been halved from 5.12 lakh, and sections reduced from 819 to 236. Following introduction, the Bill was referred to the select committee of the Lok Sabha and mandated to submit its report by March 10.

Provisions relating to exemptions, and TDS/TCS have been made crispier in the Bill by putting them in a tabular format, while the chapter for not-for-profit organisations has been made comprehensive with use of plain language. As a result of this, the word count has come down by 34,547.

"While undertaking simplification exercise, a conscious attempt has been made to minimise the scope of litigation and fresh interpretations," it said to a query on whether principles of Tax Certainty were followed in drafting of the new Bill.

Key words/phrases, especially where courts have given rulings, have been retained with minimal modifications.

Provisions have been made clear to minimise scope of multiple interpretations and tax certainty has been ensured with regard to various sections of international taxation.

The FAQ further said that while "no major policy-related changes" or tax rates changes have been made in the I-T Bill, "material" changes are being proposed in the existing law.

The Bill consolidated provisions pertaining to salary at one place for ease of understanding so that the taxpayer does not have to refer to separate chapters for filing return of income.

Deductions, like gratuity, leave encashment, commutation of pension, compensation on VRS and retrenchment compensation, are now part of the salary chapter itself.

"The drafting style of the new Bill is straightforward and clear, making the provisions easier to understand... This (Tables) minimises cross-references and conflict by aggregating all applicable provisions related to a single scenario in one place," the FAQ said.

A significant aspect of the Bill is the elimination of the concepts of "previous year" and "assessment year".

As a taxpayer had to track two different periods, it presented difficulties in complying with the provisions of the Act, especially for a new taxpayer who had to keep track of "previous year", "assessment year" as well as the "financial year", the FAQ said.

It said provisions involving the same issues, which were present in different chapters in the current Act, have now been consolidated.

In case of provisions relating to non-profit organisations (NPOs), it has been consolidated and structured into seven sub-parts.

The FAQ further said the current Income Tax Act was enacted in 1961 and came into existence with effect from April 1, 1962. It has been amended nearly 65 times with more than 4,000 amendments.

Concerns were expressed over the accumulation of amendments, intricate language, detailed provisions, redundancies and the heavy structure of the I-T Act and hence the government decided to come out with a new law.

Consultations were held with various stakeholders, including Australia and the UK where tax laws were rewritten in the past. A total of 20,976 online suggestions were received.

Also, references were drawn from the 2009 Direct Taxes Code as also the 2019 report of the government constituted six-member committee to redraft the I-T law.

The FAQ said 150 officials of the I-T department were involved in drafting of the Income Tax Bill, 2025, and more than 60,000 man hours were dedicated in its drafting.