“There is hardly any act on the Indian Statute Book which is so complicated, so illogical in its arrangement, and in some aspects so obscure as the Indian Income Tax Act,…”
Most people will mistakenly assume that the above observation concerns the Income Tax Act, 1961 (“Act”). The truth is that this is how the Law Commission of India begins its 12th Report in the year 1958 when it recommended simplification & overhauling of the erstwhile Income Tax Act, 1922.
Things haven’t changed much in 2025 when we look at the Act. It is in this context that the Finance Minister announced a comprehensive review of the Act in 2024. The Government formed a committee which invited inputs from public in four categories – simplification of language, litigation reduction, compliance reduction & redundant provisions.
The Income Tax Bill, 2025 (“Bill”), introduced by Finance Minister Nirmala Sitharaman in the Lok Sabha on Thursday (February 13), is a result of that exercise. Apart from the technical analysis, a major area of interest is whether the Bill really comes up good against the stated objective of the whole exercise.
The Good
There is indeed a huge reduction in the length of the law in terms of the words used. As per the Government, a total of 252,859 words have been reduced in the Bill. Further, various provisions have now been consolidated together. This is an improvement from the existing fragmented representation under the Act where the taxpayer is constrained to flip through the various pages to understand the import of tax treatment.
Certain clarificatory changes have been brought about in some definitional & procedural clauses, removing ambiguity in a few provisions. Importantly, the sections which were not in force anymore or which had outlived their utility, have been removed altogether.
An attempt has also been made to convert some confusing long-winded provisions & working into tables & charts. Importantly, the Bill does away with the confusing reference to Assessment Year & Previous Year. It has substituted the same with a clear “Tax Year”. It comes as a sigh of relief that the Bill, if enacted, will only be applicable from 1st April, 2026 i.e. Financial Year 2026-2027.
The Bad
On a finer look at the Bill, one gets to understand that at least part of the word count reduction has been achieved by superficial changes in the way expressions & numbers are represented in the Act currently. Therefore, “One-half per cent” becomes “0.5 per cent”. There are instances where “One hundred thousand” becomes “One Lakh”.
As an example, this new phrase now uses 2 words instead of 3 words earlier. Can it be stated that there is a 33% reduction in the word count and the law has been simplified due to this? The form remains nearly similar while the complex substance subsists.
In order to do away with “traditional” use of legalese, an important legal tool (known as non obstante clause) denoted by the use of “notwithstanding” has now been substituted with “irrespective of”.
A major part of reduction in word count is also due to the fact that redundant & obsolete sections have now been deleted under the Bill. However, most of these sections already had a sunset clause built into them & were not being applied either by the taxpayers or the tax officers. They were as good as dead letter on the statute book in any case.
The FAQs issued by the Government shortly after the introduction of the Bill state that about 1200 proviso and about 900 explanations have been removed from the sections. However, most of these very same provisos and explanations have been reintroduced as sections.
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There is complete lack of rationalisation, concession & reduction in penalty & prosecution provisions. They have been bodily lifted from the Act into the Bill. Similarly, the list of existing eligibility, ineligibility conditions, deductions, exemptions, conditions relating to non-profit organisations, etc. have been simply shifted from the Act to schedules in the Bill. Importantly, these schedules continue to cross reference several other provisions of the Bill. Hence, the complications & mental acrobatics still continue.
Even in the tabulation exercise, a question over the reformative intent remains. For example, multiple provisions for tax deducted at source (“TDS”) have been transposed into a single table with line items. However, the very same line items under the TDS provisions along with the same conditions continue in the new table with multiple rates of TDS. Hence, the complications in respect of compliance & litigation regarding the correct rate & correct head of TDS still continue.
The question remains whether this was the level of simplification & ease of reading that was being envisaged when the public consultation took place under the aegis of a government appointed committee?
The Ugly
If the taxpayer, tax practitioner & tax officers thought they will not require the present Act going forward, they are in for a disappointment. For example, one of the most litigative provisions of the current Act is the definition of “Income” under Section 2(24).
The Bill provides a definition of the term “Income” under Clause 2(49) and after 23 sub-clauses, simply states that it shall also mean any other income referred to in Section 2(24) of the Income Tax Act, 1961! There are at least 75 references to the Income Tax Act, 1961 in the Bill for the purposes of defining the terms, defining benefits, calculating depreciation & other complex workings under the Bill.
Where is the simplification if the Bill continues to rely on the complex & long-winded phrases & language of the Act itself?
There are several complex & controversial provisions which practitioners deal with regularly in practice. However, very few or almost no changes have been made in the language at most places.
Furthermore, it is normal for drafting errors to have crept in, which will open avenues for needless litigation. Shortly after the Bill was introduced in the Lok Sabha, it was followed by a release of a corrigenda containing 50 corrections in the Bill itself (uploaded on the Lok Sabha website).
The nature of the beast is evinced by the fact that several people in the media have begun to misinform the public, making incorrect claims & thus misinterpreting the Bill even after the supposed simplification (For example, see here, here)
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It remains to be seen whether the tax officers will implement the Bill, if and when enacted, as a fresh slate or will pay heed to the interpretation provided by the courts to issues under the current Act. In this regard, one of the biggest risk exposures emanate from the deletion of proviso & explanation & reintroduction as sections.
This is because the jurisprudence on the use of proviso & explanation differs from that of a normal section. Will that continue to remain binding on the tax officers? Only time will tell.
The government’s FAQs state that more than 60,000 man-hours have been dedicated for finalising the Bill. The efforts by the bright & intelligent officers are much appreciated. However, it would have been better had the exercise been merely publicised as an ease of reading & nominal changes project & nothing more.
In the current form with tables & charts incorporating the same provisions, the Bill appears to be a government sponsored version of a highly improved tax ready reckoner in place of the one published by private publishers. Irrespective of the above efforts (or shall we continue to say notwithstanding the above), the law remains tied in confusing knots as ever.
The writer is Advocate-on-Record in the Supreme Court of India and a Chartered Accountant.
