New Income Tax Act retains focus on simplification of language, removes obsolete provisions

The new income tax Bill, which is likely to be introduced in Parliament on Thursday, has focussed on simplification of the existing law and has stayed away from any tax changes.

According to sources, the intent of the move remains to make the current Income Tax Act, 1961 easy to understand and comprehend for taxpayers and any tax changes will continue to be presented in the Union Budget.

“The Bill retains all provisions of the existing Act and any new changes in the law will be presented to the Parliament as is done,” noted a source, adding that outdated provisions have also been weeded out.
Significantly, the proposed bill is understood to continue with both the new and old income tax regimes, giving taxpayers the chance to continue with the old income tax regime.

Apart from doing away with the terms ‘Assessment year’ and ‘Previous year’ and replacing it with a single term of ‘Tax Year’, the proposed Bill has also tried to make each section more comprehensive and done away with cross referencing.

For starters, provisions on Tax Deducted at Source (TDS) have been brought together. Further, TDS, presumptive taxation rates, assessment time limits are understood to have been put in a tabular format.

Amit Maheshwari, Tax Partner, AKM Global, a tax and consulting firm noted that the language of the provisions has been simplified. “For instance, the term ‘notwithstanding’ has been replaced with ‘irrespective of anything’ at many places,” he said.

He pointed out a significant change, which is the newly introduced Section 275(6) which mandates that the Dispute Resolution Panel (DRP) must provide detailed directions, explicitly stating the points of determination, its decision, and the reasons behind it. “This marks a significant shift from the earlier Section 144C, which lacked clarity on the manner of issuing DRP directions. With this amendment, DRP orders will now be well-reasoned and adequately explained, ensuring transparency and reducing reliance on past rulings,” he said.

Sandeep Jhunjhunwala, M&A Tax Partner at Nangia Andersen LLP noted that new sections covering revenue recognition for service contracts, provisions on allowability of mark to market losses, valuation of inventory at lower of cost or net realisable value, which were hitherto sheltered under ICDS, have now been brought into the new bill itself.

“Certain provisions such as allowability of set-off of short-term capital loss against business income on scrapping of business held capital assets, which was interpreted in favour by the Courts, have now been brought into the Profit and Gains on Business and Profession computation section itself,” he pointed out. Income not forming part of total income have now been moved to schedules to simplify the statute.

Experts noted that the Bill is likely to help taxpayers understand the income tax provisions more easily.
Rohinton Sidhwa, Partner, Deloitte India said the bill seeks to eliminate obsolete sections that have accumulated over decades. “This reform is a significant step towards modernizing India's tax framework, bringing greater clarity and efficiency. However, its success hinges on smooth implementation and how well taxpayers adapt to the changes. The bill promises a more streamlined, accessible tax system, making it easier for citizens and businesses to fulfill their obligations while fostering trust in the system,” he noted.

Maheshwari noted that in the new bill, the number of proviso and explanations have been substantially reduced and the references to rules and other sections have been curtailed. “This will ensure that a taxpayer will be able to gain sensible understanding of the section by reading the section itself and he does not need to refer to other rules and sections,” he said.