Introduction

In a rapidly developing economy like India, the state must ensure that economic agents can focus on economic activities without excessive difficulty, especially regarding taxation.

Income Tax Bill, 2025

Introduced by Union Finance Minister Nirmala Sitharaman, this bill aims to simplify the process of tax payment by making the law easier to understand and reducing the complexity of the existing tax framework.

• The bill reduces the number of pages from 823 to 622 and the word count from 520,000 to 260,000.
• Emphasis is placed on not overhauling the tax structure but simplifying the law.
• The Central Board of Direct Taxes will adopt a Charter for Taxpayers to enhance trust and transparency.
• The number of Sections has been reduced from 819 to 536, with consolidation of deductions for salaried taxpayers under one Section.
• Virtual digital assets have been clearly defined for taxation purposes.
• Removal of concepts like "assessment year" and "previous year" in favor of "tax year."
• Law is set to take effect on April 1, 2026, after parliamentary approval.

Implementation and Challenges

The effectiveness of the new law will depend significantly on its implementation. Challenges include:

• Reducing the number of tax litigations, which currently stand at about 544,000 appeals with over ₹10 trillion disputed.
• Engagement of state capacity in resolving disputes, which could be used more effectively elsewhere.

Personal Income Tax Simplification

The government has made strides in simplifying the personal income tax system:

• Introduction of a simple new tax regime with no tax for income up to ₹12 lakh per annum as announced in Budget 2025-26.
• Despite simplifications, the structure still contains seven tax slabs and various rebates.
• Recommendation to reduce the slabs to three for further simplification.