New income tax bill introduced in Lok Sabha will boost tax compliance: Experts

Definitions, provisions and explanations have all been simplified. This will reduce the scope for litigation and make the Act easy to understand

By Salil Panchal Forbes India Staff

Published: Feb 14, 2025 09:45:28 AM IST

Updated: Feb 14, 2025 09:52:06 AM IST

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The new Income Tax Bill 2025, presented in the Lok Sabha on Thursday by Finance Minister Nirmala Sitharaman, will result in improved tax compliance, experts told Forbes India. The new bill also allays concerns from tax payers: It does not introduce any additional burden in the form of taxes on individuals from what Sitharaman had announced in her budget speech on February 1 this year.

“The bill aims to be lucid, easy to read and understand, has eliminated over 2,000 provisions and explanations, and minimises the scope for multi-interpretations which will thereby reduce the scope for controversies and litigation,” says Anil Talreja, partner at Deloitte India. It is estimated that India has one year of tax revenue sitting in various appeals in various levels from tax assessing officers to the Supreme Court, Talreja said.

The new Income Tax bill “represents a significant modernisation of the existing tax regime. It removed redundant sections and the restructuring transforms 819 sections into 536 clauses, thereby bringing in more clarity,” says Shaily Gupta, partner at Khaitan & Co.

According to Talreja, the increased confidence will lead to a higher amount of trust in the tax machinery and the government and reduce a massive amount of litigation which will “automatically mean a good incentive to comply with the law”. This meets the final objective of the ruling government.

The ‘tax year’ simplification

One of the key changes introduced in the new bill is reducing the confusion surrounding definitions of ‘previous year’ and ‘assessment year’, which were often difficult to address for those not particularly comfortable with the tax laws. The new bill has simply introduced a ‘tax year’.

The new bill is set to be introduced from April 1, 2026. Tax year 2026-27 will mean the year which starts April 1, 2026 and ends on March 31, 2027. Tax payers should now not worry about the interpretation surrounding ‘previous year’ or ‘assessment year’, experts said.

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“These previous definitions were redundant and very confusing. The bill simplifies it now, by saying a tax year is the one where you are going to be assessed for tax,” Munjal Almoula, head of tax at BDO India, part of BDO Global which is seen as the fifth largest accounting firm after the ‘Big 4’, with 97,000 employees in more than 150 countries.

Improving faceless tax assessment

Almoula agrees with Deloitte’s Talreja on the possibility of tax compliance improving. “There is a lot of development coming up on the faceless assessment front. Earlier tax payers’ angst was of harassment from the department/officers. Now the cycle is shifting towards faceless assessment. It paves the way for tax assessment to be more reasonable and on merit,” Almoula says.

Almoula adds that the government’s moves towards simplifying the format for filing tax returns will improve tax compliance.

Various existing tax concepts such as GAAR, capital gains and taxation of royalty/ FTS, remain largely unchanged in the new bill.

Also read: Budget 2025: Government unleashes IT relief cannonball to aid consumption; there's little else for growth

After the bill is passed by the Lok Sabha, it will be sent to the Parliament's Standing Committee on Finance for further discussions and then to both the houses of Parliament again.

All experts agree that the new regime of tax filing is already well accepted by the tax paying public. Sitharaman has already provided relief to individual tax payers, particularly the middle class. There will be zero tax for salaried employees who have an income of Rs 12.75 lakh per annum, after taking into account a standard deduction of Rs 75,000. This move is seen as an effort from the government to boost household consumption expenditure and spending.