New Income Tax Bill 2025 proposes 'tax year' concept, easier terminologies
New Delhi, Feb 12, 2025
The new legislation will replace the Income Tax Act of 1961. Once passed, it will be called the Income Tax Act, 2025
The new Income Tax Bill, expected to be introduced in the Lok Sabha on Thursday, introduces a new concept of ‘tax year’—a 12-month period starting from April 1. This replaces the existing term ‘previous year’ used in the Income Tax Act, 1961, and removes the concept of the assessment year. If passed, it will take effect from April 2026.
According to the Bill shared with Members of Parliament, businesses and newly set-up professions will have a tax year that begins from the date they are established and ends with that financial year. This means income tax will be applied based on economic activity and earnings within that period.
Currently, income tax follows an assessment year system, where tax is assessed on income from the previous financial year. For example, income earned in the financial year 2024-25 (April 1, 2024, to March 31, 2025) would be assessed in the assessment year 2025-26 (starting April 1, 2025).
Replacing a 60-year-old law
The new legislation will replace the Income Tax Act of 1961. Once passed, it will be called the Income Tax Act, 2025, and is expected to take effect from April 2026.
The bill consists of:
536 sections
16 schedules
23 chapters
622 pages
The Union Cabinet approved the bill on February 7. After it is passed in the Lok Sabha, it will be sent to Parliament’s Standing Committee on Finance for further discussion.
Consultations and previous attempts at reform
In October last year, the Income Tax department set up an internal committee to review the Income-tax Act and invited public input on four areas—simplification of language, reducing litigation, easing compliance, and removing obsolete provisions. The department received around 6,500 suggestions from the public.
This is not the first attempt to simplify tax laws. In 2018, the government formed a task force to draft a new direct tax law, which submitted its report in 2019.
[The Business Standard]
