Introduction
The Indian tax system is undergoing one of the most significant reforms since independence. With the passage of the New Income Tax Bill, 2025, the government has set the stage for a cleaner, simpler, and more transparent direct taxation framework. For decades, India has been governed by the Income-tax Act, 1961, a law that has stood the test of time but has also been stretched by thousands of amendments. Over the years, the Act became bulky and complicated, containing more than 800 sections and numerous sub-rules that made compliance a challenge for ordinary taxpayers as well as businesses. The new Bill, passed by the Lok Sabha in August 2025, seeks to correct these shortcomings by introducing a modern tax code that is aligned with today’s economic realities. This article is the first in our 10-part weekly blog series on the New Income Tax Bill, 2025. In this introductory piece, we will discuss why the new law was necessary, highlight the key features of the Bill, and explain how it is expected to change the tax environment for individuals and businesses alike.
Why a New Tax Code Was Needed
The Income-tax Act, 1961, though comprehensive at its inception, gradually became one of the most amended pieces of legislation in India’s history. With every Finance Act, new provisions were added, existing provisions were tweaked, and often, court interpretations further complicated matters. As a result, taxpayers, professionals, and even the tax department struggled with ambiguity and complexity.
For instance, the dual concept of “Previous Year” and “Assessment Year” confused new taxpayers. Deductions and exemptions were scattered across various chapters, often with unclear wording. Litigation increased significantly, with both businesses and individuals frequently finding themselves entangled in disputes. Most importantly, the law had not kept pace with emerging realities such as digital assets, globalised businesses, and cross-border transactions. Recognising these challenges, the government has taken the bold step of overhauling the entire framework. The Income Tax Bill, 2025 is not merely an amendment — it is a complete rewrite of the law, designed to provide clarity, reduce disputes, and simplify compliance.
Key Highlights of the New Income Tax Bill, 2025
One of the most striking features of the new Bill is its simplification of structure. The old law had over 800 sections spread across 47 chapters, but the new code consolidates these into just 536 sections and 23 chapters. The language has been reworked to make it easier to read and understand, with the overall word count nearly halved. For the first time, taxpayers can expect a law that is accessible without requiring constant cross-references.
Another major change is the introduction of a unified “Tax Year” concept. The confusing practice of referring separately to “Previous Year” and “Assessment Year” has been abolished. Instead, the law will now work on a straightforward “Tax Year” basis, which is expected to make compliance and planning much easier for ordinary taxpayers.
The Bill also reflects the government’s commitment to technology-driven governance. Faceless assessments and appeals will now be the norm, significantly reducing direct interaction between taxpayers and tax officers. This will not only cut down delays but also curb the scope for harassment and corruption, making the process more transparent.
Refund rules have been made more taxpayer-friendly. Under the new law, taxpayers will be able to claim refunds even if they miss the original return filing deadline. This provision marks a shift towards fairness, ensuring that taxpayers are not penalised unnecessarily for genuine delays.
The treatment of deductions and exemptions has been clarified. For instance, income from house property will now enjoy a standard deduction of 30%, pre-construction interest rules have been simplified, and clear provisions have been laid down for pensions and vacant properties. For corporates, the revival of Section 80M brings relief on inter-corporate dividends, thereby reducing the cascading effect of taxes.
Another important area addressed is the taxation of Virtual Digital Assets (VDAs) such as cryptocurrencies and NFTs. These have now been clearly defined under the new law, ending years of ambiguity about their treatment. At the same time, the Bill places restrictions on anonymous donations to religious trusts that do not engage in social work, closing loopholes that were prone to misuse. Finally, the Central Board of Direct Taxes (CBDT) has been empowered with greater rule-making authority. This will enable the government to update compliance rules and procedures more swiftly without the need for frequent parliamentary interventions, ensuring the tax system evolves in line with changing realities.
Legislative Journey of the Bill
The journey of the New Income Tax Bill has been equally significant. The Bill was first introduced in Parliament in February 2025. However, it was withdrawn in August 2025 to incorporate the recommendations of a Select Committee, which had suggested more than 280 changes. After careful consideration, the revised Bill was reintroduced and passed in the Lok Sabha on 11 August 2025, with most of the committee’s suggestions accepted. The law is now scheduled to come into effect from 1 April 2026, meaning it will apply from the Financial Year 2026–27 onwards.
Impact on Taxpayers
For individuals, the new law promises greater clarity, fewer disputes, and simpler compliance. With streamlined provisions and clearer deduction rules, taxpayers will find it easier to compute their liabilities without relying heavily on complex interpretations. The option to claim refunds beyond deadlines will bring relief to many who have faced hardship under the earlier system.
For businesses, the focus on faceless assessments and reduced litigation is a welcome change. Corporates will benefit from clearer dividend taxation rules and faster resolution of disputes. Start-ups and digital businesses, particularly those dealing with cryptocurrencies, will finally have certainty about how their incomes are taxed. For professionals, including Chartered Accountants and tax advisors, the law reduces ambiguity and offers a cleaner framework to guide clients. While initial familiarisation with the new structure will take some effort, the long-term benefits of reduced litigation and clarity will outweigh the short-term challenges.
Looking Ahead in This Series
This article is only the beginning. Over the next nine weeks, we will publish detailed articles exploring different aspects of the new law. Topics will include the new Tax Year concept, the functioning of faceless assessments, changes in deductions and exemptions, taxation of digital assets, impact on charitable trusts, corporate taxation reforms, simplified appeal mechanisms, and practical tax planning strategies under the new regime.
Conclusion
The Income Tax Bill, 2025 is a bold step towards modernising India’s tax system. By reducing complexity, clarifying provisions, and embracing digital governance, the new law represents a shift towards fairness, transparency, and ease of compliance. For taxpayers, this means fewer disputes and more certainty; for businesses, it means better alignment with global practices; and for professionals, it means a more predictable environment to advise clients. As the law comes into force from April 2026, it is crucial for all stakeholders to familiarise themselves with the changes and prepare accordingly. In the coming weeks, we will continue to analyse the finer details of this landmark legislation, helping you navigate the new tax regime with clarity and confidence.