India is on the brink of its biggest tax reform in over six decades, as Union Finance Minister Nirmala Sitharaman is likely to table the much-awaited Income Tax Bill, 2025 in Parliament on August 11, according to sources. The legislation aims to replace the Income Tax Act, 1961 with a modern, streamlined framework designed to simplify compliance, reduce litigation and enhance clarity for taxpayers.
The Bill, first introduced in the Lok Sabha on February 13, 2025, is significantly shorter and more accessible than its predecessor, with just 536 sections compared to the current 819 and 23 chapters instead of 47. The total word count has been nearly halved, from 5.12 lakh to 2.6 lakh, making it easier for both taxpayers and professionals to navigate.
Among its major reforms is the replacement of the dual concepts of "previous year" and "assessment year" with a single "tax year", aligning the earning and filing of taxes within one financial year. The Bill also emphasises digital documentation, clear compliance guidelines and modern dispute resolution mechanisms.
The draft incorporates 566 recommendations from a Select Committee led by BJP MP Baijayant Panda, including:
- Relief for Homeowners: Fairer deductions for house property income and extended pre-construction interest benefits for let-out properties.
- Protection for Small Taxpayers: Exempting those below the taxable limit from filing returns solely to claim TDS refunds.
- Support for Businesses: Clearer tax rules for R&D investments and tax relief for biodegradable waste management.
- Reduced Litigation: Reinstating flexible wording in tax avoidance provisions to reduce legal disputes.
While the Bill does not alter existing tax rates or slabs, it is expected to take effect from April 1, 2026, subject to parliamentary approval. Taxpayers, businesses, and professionals are now watching closely as India prepares for what could be a landmark overhaul of its direct tax system.
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