Rama Krishna Sangem
A leaner, simplified and people friendly Income Tax Act will come into force from April 1, 2026. This is line with Prime Minister Narendra Modi’s commitment to ensure two things – a more people friendly tax regime and simplified procedure where scope for litigation and harassment will be less. Finance Minister Nirmala Sitharaman in her February 1 union budget announced about this new Income Tax Act which will become a law after parliamentary scrutiny.
The new Income Tax Bill, 2025, likely to be introduced in Parliament soon, will come into effect from April 1, 2026, replacing the Income Tax Act, 1961. The new bill has significantly reduced the number of sections to 536. It includes 16 schedules compared to 14 in the existing law and spans 622 pages, down from 823 pages earlier.
According to a copy of the bill circulated among members of Parliament, the bill introduces the concept of a ‘tax year’, defined as the 12-month period of the financial year commencing in April. “The terms ‘assessment year’ and ‘previous year’ have been removed, and the single term ‘tax year’ will be used going forward, comprising 12 months from April to March of the relevant financial year,” said Amit Maheshwari, tax partner, AKM Global.
The bill also introduces a significant provision that could reshape taxation in the virtual digital asset (VDA) space. “The definition of property under Income from Other Sources includes virtual digital assets in the proposed bill, thereby taxing VDA transactions made without or for inadequate consideration. This is an important provision and could have a major impact in the VDA space,” said Vivek Jalan, partner, Tax Connect Advisory Services, according to a Business Standard story.
The concepts of explanations and provisos have been removed from the new version for ease of interpretation and understanding.
“New sections covering revenue recognition for service contracts, provisions on the allowability of mark-to-market (MTM) losses, and the valuation of inventory at the lower of cost or net realisable value, which were previously under Income Computation and Disclosure Standards (ICDS), have now been incorporated into the new bill,” said Sandeep Jhunjhunwala, partner, Nangia Andersen LLP.
Simplified act
“Certain provisions, such as the allowability of set-off of short-term capital loss against business income on scrapping business-held capital assets—which was earlier interpreted favourably by the courts—have now been incorporated into the profits and gains of business or profession (PGBP) computation section. Income not forming part of total income has been moved to schedules to simplify the statute,” added Jhunjhunwala.
All deductions from salaries, such as standard deduction, gratuity, and leave encashment, have now been consolidated in one section instead of being scattered across various sections and rules.
“A formula-based approach has been adopted. For instance, the definition of written-down value (WDV) in the case of a block of assets, which was earlier verbose, is now broken down into a simple formula. All tax deducted at source (TDS) related sections have been consolidated under a single clause with simple tables for ease of understanding. However, once this bill is notified, many changes will be required in forms and utilities for reporting purposes,” stated Jhunjhunwala.
