Cabinet Clears New Income Tax Bill: Major Tax Reforms Set for Lok Sabha Debate

The Union Cabinet has approved a new Income Tax Bill to replace the 1961 Act, simplifying tax laws and reducing legal disputes. The bill focuses on digital taxation, taxpayer rights protection, and eliminating ambiguities without introducing new taxes. It will be presented in Parliament during the Budget 2025 session for further discussion and approval.

CONTENTS:

• Union Cabinet Approves New Income Tax Bill to Modernize and Simplify Taxation
• New Income Tax Bill Approved by Union Cabinet, Set for Parliamentary Debate
• Cabinet Approves New Income Tax Bill, Set for Lok Sabha Introduction on Monday

Cabinet Clears New Income Tax Bill: Major Tax Reforms Set for Lok Sabha Debate

Union Cabinet Approves New Income Tax Bill to Modernize and Simplify Taxation

Cabinet Clears New Income Tax Bill: Major Tax Reforms The Union Cabinet has approved a new Income Tax Bill to simplify tax laws, enhance clarity, and modernize the tax system. This bill, which replaces the Income Tax Act of 1961, is expected to reduce legal disputes, encourage compliance, and streamline the taxation process. It will be presented in Parliament during the ongoing Budget 2025 session, likely on Monday.

Key Features of the New Income Tax Bill:

• Simplified Tax Structure: The new law will be significantly shorter and written in a clearer language, making it easier to understand and interpret.
• No Budget Dependence for Tax Relief: The government will have the power to modify tax deduction and rebate limits through executive orders, removing the need to wait for the annual budget for changes.
• Paperless and Digital Taxation: A stronger emphasis on digital tax filing and faceless assessment aims to reduce human intervention, minimize corruption, and enhance transparency.
• Taxpayer Rights Protection: The bill follows a “trust-first” approach, ensuring that scrutiny is only applied in cases of clear non-compliance, reducing harassment and litigation.

Impact on Taxpayers:

• Salaried Individuals: A simplified tax structure could make filing easier and potentially lower taxes for the middle class.
• Businesses: A more straightforward tax code will reduce legal complexities and make compliance smoother.

Cabinet Clears New Income Tax Bill: Major Tax Reforms Finance Minister Nirmala Sitharaman highlighted in the Budget 2025 speech that the bill aligns with the principle of “Nyaya” (justice), similar to the Bharatiya Nyaya Sanhita, which replaced the Indian Penal Code in 2024. The government aims to create a tax system that is clear, direct, and fair, leading to greater tax certainty and fewer disputes.

New Income Tax Bill Approved by Union Cabinet, Set for Parliamentary Debate

Cabinet Clears New Income Tax Bill: Major Tax Reforms :  The Union Cabinet, led by Prime Minister Narendra Modi, has approved the New Income Tax Bill, paving the way for its introduction in Parliament next week as part of the ongoing Budget 2025 session, according to a PTI report. This new legislation aims to replace the Income Tax Act of 1961, simplifying tax laws, eliminating ambiguities, and reducing legal disputes.

Finance Minister Nirmala Sitharaman stated that the bill would be presented during the Budget session and later reviewed by the Standing Committee on Finance. Meanwhile, Finance Secretary Tuhin Kanta Pandey confirmed that the new law will feature clear and concise language, without complex provisos or explanations, while maintaining tax neutrality.

Key Highlights of the New Income Tax Bill

🔹 Why is a New Tax Bill Necessary?

The Income Tax Act, 1961, has evolved over decades through multiple amendments, making it complex and difficult for taxpayers to interpret. The new law aims to:

• Streamline direct tax regulations, making them more accessible.
• Reduce legal disputes by eliminating outdated provisions.
• Ensure clarity for individuals and businesses on their tax obligations.

🔹 How Will the New Law Be Simpler?

• The existing tax code includes 298 sections across 23 chapters, covering personal income tax, corporate tax, and securities transaction tax.
• Over time, certain taxes—such as wealth tax, gift tax, fringe benefit tax, and banking cash transaction tax—have been removed, but their remnants remain in the law.
• The new bill will remove irrelevant provisions, making it half the length of the current law and easier for taxpayers to understand without professional consultation.

Will the New Tax Bill Increase the Tax Burden?

No, the new tax bill is expected to be revenue-neutral. It does not propose changes to tax rates; these adjustments typically occur through the Finance Act, presented in the annual Union Budget on February 1. Any modifications for FY26 will be incorporated into the new bill.

Why is the Income Tax Act Being Reviewed?

• Modernization: The 1961 law was designed for a different economic landscape. With digital advancements, tax compliance now involves pre-filled ITR forms using data from banks, employers, and property transactions.
• Eliminating Complexity: Over six decades, numerous amendments have made the law difficult for ordinary citizens to navigate. The revised bill aims to simplify tax compliance and reduce the need for legal interpretation.

The government’s goal is to create a straightforward and transparent tax system, allowing individuals and businesses to fulfill tax obligations with ease while minimizing disputes.

Cabinet Approves New Income Tax Bill, Set for Lok Sabha Introduction on Monday

The Union Cabinet has approved the New Income Tax Bill, which is expected to be tabled in the Lok Sabha on Monday, according to sources. This legislation, often referred to as the Direct Tax Code, aims to modernize and simplify the current tax system, making it more transparent and streamlined.

Key Highlights of the New Tax Bill

🔹 No New Taxes
The government has clarified that the bill will not introduce any new taxes. Instead, the focus will be on:

• Simplifying tax laws
• Reducing ambiguities
• Enhancing ease of compliance for taxpayers

🔹 Phasing Out the Old Tax Regime?
With zero tax liability for incomes up to ₹12 lakh and significant savings across income brackets, the new bill could mark a major step toward gradually eliminating the Old Tax Regime.

🔹 Expected Amendments
The revised tax code is likely to introduce:

• Lower penalties for certain tax offences
• Reduction in litigation to create a more taxpayer-friendly framework
• Clearer legal language, ensuring ordinary taxpayers can easily understand tax provisions

Government’s Vision: Trust-Based Taxation

During her Budget 2025 speech, Finance Minister Nirmala Sitharaman emphasized a “trust first, scrutinize later” approach, reinforcing the government’s commitment to reducing compliance burdens. The bill will likely be referred to the Standing Committee for further discussion and refinement before final approval.

Expert Opinions on the Reform

Legal expert Sandeep Chilana, Managing Partner at CCLaw, acknowledged that while a complete overhaul of the Income Tax Act is a bold move, its effectiveness will depend on:
✔ Reducing disputes and litigation
✔ Ensuring predictability in tax administration
✔ Addressing complex exemptions and retrospective taxation issues

The success of the new Direct Tax Code will be closely monitored by businesses and professionals, as it seeks to balance government revenue needs with taxpayer convenience.