'Income Tax Bill likely to be taken up in Feb 7’s cabinet meeting': Govt sources

The Union Cabinet is expected to approve the new Income Tax Bill on Friday, February 7, which could result in its introduction in the Lok Sabha early next week, government sources told Business Today. The purpose of the new Income Tax Bill is to simplify and streamline the tax process by replacing the current Income Tax Act of 1961.

During her Budget presentation on February 1, 2025, Union Finance Minister Nirmala Sitharaman announced that the new Income Tax Bill will be presented in Parliament in the following week. The Union Budget was unveiled on Saturday, February 1, marking the beginning of the process to replace the longstanding law that has been in place for close to six decades.

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The upcoming income tax bill is scheduled to take effect starting from the fiscal year 2025-26 and will be applicable from the assessment Year 2026-27 as per the budget announcement made on February 1, 2025.

The Income Tax Act of 1961 has been in operation for more than sixty years, comprising 298 sections and 23 chapters. With each Union Budget bringing new amendments and revisions, the existing income tax legislation has evolved into a highly intricate framework.

She said, “Over the past 10 years, our government has implemented several reforms for the convenience of taxpayers, such as faceless assessment, taxpayers charter, faster returns, almost 99 per cent returns being on self assessment, and Vivad se Vishwas scheme. Continuing these efforts, I reaffirm the commitment of the tax department to “trust first, scrutinise later”. I also propose to introduce the new income-tax bill next week.”

What can the New Tax Bill cover

The government has announced that the 63-year-old Income Tax Act, 1961 will be replaced by a new law, with changes based on taxpayer feedback. The new tax regime, introduced in 2020 under the 1961 law, is set to take effect from 1 April 1962.

Sitharaman in her budget speech stated, “I am happy to inform the country that the new income-tax bill will carry forward the same spirit of “Nyaya”. The new bill will be clear and direct in text with close to half of the present law, in terms of both chapters and words. It will be simple to understand for taxpayers and tax administration, leading to tax certainty and reduced litigation."

CBDT Chairman Ravi Agarwal stated that the government is focused on transitioning taxpayers to the new regime, with approximately 75% already on board. Following income tax exemptions, 95-97% of taxpayers are expected to be included in the new regime, simplifying the process of filing tax returns.

Agarwal has encouraged industry stakeholders to provide input on the new Bill, which was drafted in just six months with a focus on simplifying language for easier tax compliance and understanding by taxpayers.

Agrawal also noted that over the past three years, approximately 90 lakh updated I-T returns (ITR-U) have been filed, resulting in an increase of around Rs 8,500 crore in revenue.