Budget 2025: New Income Tax Bill will simplify compliance for taxpayers

In a move that promises to simplify the tax filing process, Finance Minister Nirmala Sitharaman announced that a new Income Tax Bill, aimed at overhauling and simplifying the existing tax code, will be introduced next week. The bill, referred to as the Direct Tax Code (DTC), is designed to make it easier for individual taxpayers to calculate their taxes and file returns, marking a significant shift in India’s tax landscape.

 

Speaking during the Union Budget 2025 presentation on February 1, 2025, Sitharaman emphasized that the new code would not only simplify the complex provisions of the current tax laws but also enhance taxpayer convenience. The government’s vision is to make tax compliance more transparent, efficient, and less burdensome for taxpayers.

 

Key Highlights of the New Direct Tax Code

 

Simplified Tax Filing Process: The DTC is expected to reduce the complexity involved in calculating taxes and submitting returns. By streamlining the process, the government aims to ease the tax filing burden on individuals, making it more user-friendly.

 

Removal of the Financial Year vs Accounting Year Concept: Another major change that the new code could introduce is the scrapping of the distinction between the financial year (FY) and accounting year (AY). This move is seen as a step towards harmonizing tax reporting and enhancing clarity for taxpayers.

 

Reduction of Tax Law Pages: As per earlier indications by Finance Minister Sitharaman, the government plans to reduce the length of the Income Tax Act of 1961 by a substantial 60%. This drastic reduction is aimed at making the tax code simpler, more readable, and easier for taxpayers to understand.

 

The proposal for a new direct tax code was first mentioned by Sitharaman during the 2024/25 budget presentation in July. At the time, she noted that simplifying the tax system was a key priority for the government.

 

The new tax code is expected to provide a clearer framework for both individuals and businesses, aligning with the government’s goal of improving ease of doing business and fostering greater taxpayer compliance.  

While the details of the new Direct Tax Code are awaited, stakeholders from various sectors have welcomed the initiative, viewing it as a crucial step in reducing administrative challenges and making the tax system more transparent. The government has indicated that further consultations may follow after the bill is presented to Parliament, ensuring that the views of all affected parties are taken into account.

 

As the introduction of this bill draws nearer, businesses and individual taxpayers are looking forward to a more user-friendly tax environment, one that simplifies their obligations while ensuring greater compliance across the board.