New Income Tax Bill tabled in Lok Sabha, What is in it

Finance Minister Nirmala Sitharaman introduced the new Income Tax Bill in Lok Sabha on Thursday to replace the existing bill. The new bill is designed to simplify and overhaul the present Income Tax Act of 1961.

The current law has faced criticism for being too complicated and difficult for regular taxpayers to understand. The new bill aims to simplify things, featuring 23 chapters, 16 schedules, and around 536 clauses. This is a notable reduction from the existing act, which spans 823 pages, and includes 23 chapters, 14 schedules, and 298 sections.

Further, the new bill uses simpler and clearer words and has let go of complicated legal terms. The term ‘Tax Year’ has been introduced, which replaces the term ‘Assessment Year’, which often leads to confusion among taxpayers.

the Finance Ministry said the new tax system is built on five core principles, which make it 'S.I.M.P.L.E' for people to follow and to enforce. These five principles were explained as: "Streamlined structure and language, Integrated and concise, Minimised litigation, Practical and transparent, Learn and adapt, and Efficient tax reforms". 

After introducing the New Income Tax bill in the House, Finance Minister Nirmala Sitharaman recommended sending the bill to the select committee. Lok Sabha Speaker Om Birla is expected to release the list of names of select committee members soon. The JPC is expected to submit its report on March 10, the first day of the second half of the Budget Session. 

What is in the new bill

The new law will take effect from April 1, 2026. It will not, however, change existing tax slabs. Among the proposed changes and amendments is the concept of a 'tax year', which will replace the simultaneous use of 'financial year', or FY, and 'accounting year', or AY. In other words, under current income tax laws, tax for income earned in 2023/24, for example, is paid in 2024/25.

The proposed change will see the introduction of a 'tax year', so tax on income earned in a year will be paid that year. It has also omitted redundant sections, like those about 'fringe benefit tax'.

Tables have been included for provisions relating to TDS, or tax deducted at source, 'presumptive taxation', salaries, and deductions for bad debt. Overall, it tries to replace the 1961 Act, which critics had become voluminous due to amendments made over the past 60 years. Speaking this afternoon, Ms Sitharaman said, "The Income Tax Act was originally enacted in 1961 and came into effect in 1962."

The biggest point in the New Income Tax Bill is that existing tax slabs do not change.