The newly proposed Income Tax Bill has been simplified and reduced to fewer sections compared to the existing Income Tax Act. While the current Act comprises over 700 sections, the new bill consolidates these into 536 sections.
A notable change is the restructuring of section numbering. In the new bill, all clauses are sequentially numbered, eliminating the use of alphabets in section identifiers. This reorganization might give the impression of an increased number of sections, but in reality, the content remains largely unchanged.
Below is a table summarizing the key structural changes introduced in the new bill:
| Particulars |
Income Tax Act 1961 |
Income Tax Bill 2025 |
| Number of Schedules |
14 |
16 |
| Number of Chapters |
23 |
23 |
| Number of Sections |
More than 700 |
536 |
| Effective Date |
Currently applicable |
Starting From 1st April 2026 |
Reduced Content and Easier to Read
The New Income Tax Bill features more sections but with reduced content across sections and simple words, which makes it much easier to understand.
Tax Recovery and Appeal
The bill has provided provisions to improve the overall reforms to the tax recovery and appeal processes. This aims to make the tax appeal and recovery process simpler and help the government recover taxes easily.
Changes in Business Income
The ITB proposes merging Sections 30 and 31, allowing fair and proportionate deductions for premises, machinery, plant, or furniture partially used for business or professional purposes. Additionally, GST will be excluded from the asset cost if an input tax credit is claimed.
Information Technology and Company Secretary are now explicitly listed as specified professions, while authorized representatives and firm artists are proposed to be removed.
No Entertainment Allowance Deduction for Gov. Employees
The new Income Tax Bill, set to take effect from April 1, 2026, removes the provision allowing government employees to claim deductions for entertainment allowances. Previously, this benefit was exclusive to government employees, with the deductible amount being the lowest of the following:
- 1/5th of their basic salary,
- Rs 5,000, or
- The actual amount received as entertainment allowance.
Changes in Provisions Related to Capital Gains
The provisions related to Capital Gains are now covered under the following clauses:
- Clause 67: Defines Capital Gains
- Clause 196: Covers Short-term Capital Gains for Equity Shares, Equity-Oriented Funds, and Business Trust Units
- Clause 197: Covers Long-term Capital Gains for Non-Equity Long-term Assets
- Clause 198: Covers Long-term Capital Gains for Equity Shares, Equity Mutual Funds, and Business Trust Units
Additionally, Section 47 of the Income Tax Act, 1961, has been redefined. The revised bill proposes removing provisions related to the transfer of land by an industrially sick company and the demutualization of stock exchanges.
Introduces a Taxpayer Charter
The New Income Tax Bill introduced a taxpayer’s charter, which will help ensure transparency and fairness in the administration of taxes. It outlines the rights and obligations of the taxpayer.
Restructuring of Section 80C
The deductions under Section 80C, previously scattered across the section, are now organized into a simplified list of eligible savings instruments in the proposed Schedule XV. The deduction limit remains unchanged, while the schedule provides a clear and structured breakdown of eligible deductions. These changes improve transparency, making the process more accessible and easier for taxpayers to understand.
Improvement in Section 80G
Section 80G, which allows deductions for donations, has been revised to clearly categorize deductions into 100% and 50% eligibility, without any policy changes. This update simplifies the process, helping taxpayers easily identify and claim the correct deduction amount.
Changes in Section 80TTA and 80TTB
Sections 80TTA and 80TTB have been merged into a single section with clear sub-sections explicitly stating eligibility and deduction limits. This simplifies the process, especially for senior citizens.
Clarification on Tax-Exempt Gifts from Lineal Relatives
Under Section 56(2)(x) of the current Income Tax Act, gifts received by an individual from lineal ascendants or descendants (including those of their spouse) are exempt from income tax. The new bill explicitly clarifies that lineal ascendants or descendants can be from either the maternal or paternal side.
More Powers to the Central Board of Direct Taxes (CBDT)
The new bill omits the seventh provision of the current Income Tax Act, which outlines specific conditions (e.g., foreign travel, turnover exceeding thresholds) under which an Income Tax Return (ITR) must be filed, even if income is below the basic exemption limit. Instead, the CBDT has been granted the authority to determine the conditions mandating return filing. Furthermore, the CBDT can now require detailed information from taxpayers, including credit card details, expenditures exceeding specified thresholds, outgoings, and particulars of the principal place of business.
Introduction of the "Tax Year"
One of the most anticipated changes in the new Income Tax Bill was the removal of the concepts of the "previous year" and "assessment year," a move welcomed by both professionals and the common taxpayers.
Under the current Income Tax Act, these two concepts play a central role. The "previous year" refers to the year in which income is earned, while the "assessment year" is the year in which that income is taxed. The assessment year always follows the previous year, meaning taxpayers file their income returns in the assessment year for the income earned in the previous year. However, this dual framework often led to confusion and complexities in applying tax provisions accurately.
To address these challenges, the new bill introduces the concept of the "Tax Year," detailed in Section 3. Essentially, the Tax Year aligns with the financial year, running from April 1 to March 31. This simplification replaces the dual reference system, with the term "Succeeding Tax Year" now used in place of "Assessment Year" wherever necessary. This change aims to streamline the tax process and reduce ambiguities.
Virtual Digital Assets: Explicitly Included in Tax Laws
In recent years, there has been a substantial surge in digital transactions, fueling the growth of digital assets and online income. To address this shift, the New Income Tax Bill incorporates provisions for digital income and assets wherever relevant, ensuring they are properly accounted for in taxation.
For example, the definition of undisclosed income now explicitly includes Virtual Digital Assets, a category that was not covered under the existing legislation. This update reflects the evolving nature of income sources in the digital age.
Stricter Penalties for Non-Compliance Under Section 276CCC
Section 276CCC of the current Income Tax Act addresses the failure to file income returns in search cases. The new bill proposes to make this a non-cognizable offense, requiring prior sanction from the appropriate authority for prosecution. Additionally, repeat offenders will face stricter penalties, including rigorous imprisonment ranging from six months to seven years, along with fines.
How Section 202 Changes Section 115BAC
Section 115BAC of the current Income Tax Act recaps the new tax regime applicable to specific assessees, namely Individuals and Hindu Undivided Families (HUF). In the proposed Income Tax Bill, this provision is addressed under Section 202, which expands the scope of the new tax regime to include additional entities, such as the Association of Persons, Body of Individuals, and Artificial Juridical Persons, alongside Individuals and HUFs.
Similar to the existing framework, the new bill retains the option to opt out of the new tax regime, though it remains the default option. In terms of deductions, the new bill largely mirrors the existing provisions. Deductions that are unavailable under Section 115BAC of the current Act continue to be excluded under Section 202 of the new bill. Conversely, deductions permitted under Section 115BAC are also carried forward and made available under the new Income Tax Bill.
Change in NRI Residency Rules
Earlier, Indian citizens moving abroad ‘for the purpose of employment’ had to stay in India for less than 182 days to be considered non-residents. The New Income Tax Bill has modified this phrase to ‘for employment outside India.’ Due to this change, job seekers, self-employed individuals, freelancers, and professionals now fall outside the relaxed residency benefit.
TDS and TCS Provisions
The ITB expands the scope of Section 197, allowing taxpayers to apply for a nil or lower TDS certificate for all types of payments, not just specific ones. Similarly, it broadens Section 206C(9), enabling buyers to request a lower TCS certificate for any transaction.
Unexplained Income
The ITB consolidates provisions on under-reported money or assets from Sections 69A and 69B under Clause 104, while unexplained investments from Section 69A are now covered under Clause 103.
Additionally, Section 69D, which treats non-account payee transactions on Hundi loans as income, has been expanded to include negotiable instruments.
Penalties
The ITB removes the mandatory requirement of providing an opportunity to be heard before imposing penalties for:
- Failure to answer questions, sign statements, furnish information, returns, or statements, and allow inspections
- Non-compliance with Clause 254 of ITB / Section 133B of ITA
- Non-compliance with Clause 262 of ITB / Section 139A of ITA
- Non-compliance with Clause 397(1) of ITB / Section 203A of ITA
- Failure to furnish an ITR after a search, which is now a non-cognizable offence
Additionally, prosecution under Clause 476 of ITB / Section 276CCC will also be a non-cognizable offence, requiring prior approval from PCIT, CIT, JCIT (Appeals), CIT (Appeals), or appropriate authority. Repeat offenders will face rigorous imprisonment from six months to seven years, along with a fine.
Liability in Special Cases
Clause 307 of the ITB largely retains Section 164 of the ITA, with no major changes. However, due to the introduction of a new NPO taxation regime, sub-sections (2) and (3), related to the taxation of charitable or religious trusts with unknown beneficiaries, have been moved to the relevant NPO taxation chapter.
Additionally, the ITB removes the provision that allowed certain trusts created by will to avoid taxation at the highest marginal rate under Section 161 of the ITA.
A new provision has also been introduced to clarify how the taxable portion of a beneficiary’s income from a trust will be determined when only part of the trust’s income is chargeable.
Transfer Pricing
The ITB removes the arithmetical mean concept from Section 92C of the ITA for determining the Arm’s Length Price (ALP) in international and specified domestic transactions. Instead, when multiple prices are determined using the most appropriate method, the Board will specify the procedure for determining the ALP.
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