The bill is culmination of amendments incorporated in successive budgets since the idea of a Direct Tax Code 2010 was floated in 2009. It aims to maintain relative stability in the well understood provisions of existing income-tax law while simplifying it after a comprehensive review making it “concise, lucid, easy to read and understand”.
The FAQs issued for the new bill emphasize that the international experience of countries like the UK and Australia, which have undertaken similar exercises, i.e., writing a new tax code, has been duly considered to ensure linguistic simplification as well as structural rationalization.
As promised, on the first flush, the new income tax bill is direct in text, replacing multiple provisos and explanations with clearly enumerated sub-sections and clauses. Redundant provisions in the current law have been done away with, and the language has been simplified, substituting seemingly pompous words with simpler words. The flow of the law has been rearranged to make it easier to navigate and read chapters, while deductions and exemptions have been moved into schedules and tables.
The provisions of the proposed Budget 2025 have also been incorporated in the new income tax bill. As expected in such a humungous undertaking in a limited period, there are some typos that have crept in which will surely be corrected.
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Key aspects
Some of the key aspects of the new Income-tax bill for individual taxpayers are as follows:
1. There has been no change in the income tax rates, rebates and reliefs available under the current law. The new bill includes both old and new tax regimes with tax rates as proposed in the Finance Bill, 2025.
2. The provisions related to residential status have been reorganized by moving explanations and provisos to sub-sections and clauses. However, the rules for determining residential status for Indian nationals and foreign nationals have not changed. For Indian citizens leaving India for employment, the change in the phrase “for the purposes of employment outside India” to “for employment outside India” should not change the existing understanding of the provision.
3. The concept of “tax year” has been introduced replacing “previous year” and “assessment year”. The term “assessment year” (one year post previous year or financial year) created confusion as all timelines and procedural compliances were linked to the assessment year. Many countries use only one single term for denoting the period of taxation and the term “tax year” is commonly used in many countries. The new single “tax year” concept will make the law easier to read and comprehend.
4. Currently, reimbursement from the employer or any other person for covid-19 related illness is not liable to tax. The new bill has omitted the provisions related to reimbursement for covid-19 related illness from the salary chapter and from the other sources chapter. Maybe the government will extend the relief via a separate notification. Further, reimbursement by the employer for medical treatment of prescribed diseases is not liable to tax if the employee provides a certificate from the hospital specifying the disease and the receipt for the amount paid to the hospital. The requirement from the employee to provide a certificate from the hospital and receipt has been omitted. This will lead to a reduced compliance burden for the employer and employees.
5. The provisions related to the salary chapter have been consolidated in one place. For example, the exemption related to payment for gratuity, leave encashment, commutation of pension, compensation under voluntary retirement scheme, and retrenchment compensation under Industrial Disputes Act, 1947, which were earlier in the chapter relating to exempt income, has been reorganized as deductions from salary income in a tabular format, making it easier to read and understand. Formulas for computation of deduction have been clearly explained.
6. Expense incurred by the employer for the use of any vehicle for journey by the employee from home to office or any other place of work and vice versa has been considered as not taxable. Currently, the vehicle provided by the employer for journey by the employee from home to office or any other place of work and vice versa is not taxable. This is a welcome clarification and removes ambiguity.
7. Deductions under Section 80C have been moved to a separate schedule XV. The limit of ₹150,000 remains the same. The language of all other deductions like Section 80D, 80CCD, 80E, 80EEB, 80TTA, 80G, etc have been simplified with no change in the quantum of deduction and conditions.
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The finance minister while presenting the Finance Bill 2025 had said that the tax reforms will play a key role in achieving the vision of “Viksit Bharat” and had suggested that the spirit of replacing dand (punishment) with nyaya (justice) will be carried forward in the new income tax bill. The tax bill and the proposed taxpayer’s charter when implemented in the spirit of justice and transparency will surely usher in the much-needed tax reforms aimed at ease of compliance and ease of doing business.
Sonu Iyer is national leader, People Advisory Services, EY India.
Siddharth Deb, tax director, EY India also contributed to the article.