Over time, this made the Act unwieldy, increasingly complex and difficult to navigate, even for practising accountants and lawyers. Interpreting the law today requires sifting through an overwhelming number of sections, schedules and amendments before arriving at a clear understanding. While the Act has 298 sections, it has multiple alpha-numerical sections too, taking the total to more than 800. In short, it's mind-boggling.

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Recognizing this complexity, the government in recent years has sought to simplify the tax structure while lowering tax rates. The introduction of a new corporate tax regime, offering companies the option of a lower 25% tax rate (plus surcharge) without making deduction claims or a 30% rate (plus surcharge) with the ability to claim deductions, was a major step in this direction. 

Since deduction claims often led to prolonged litigation, a significant number of corporations have gradually migrated to the no-deduction lower-rate regime.

The government extended this approach beyond corporates by encouraging individual income-tax payers to switch over to a new and simplified tax regime. With the Finance Act of 2024, a significant shift towards the new regime is expected among the country's individual taxpayers.

This brings us to a fundamental issue. We have an outdated Income Tax Act, burdened with obsolete provisions and a cumbersome structure, especially in the context of economic liberalization, which reduced the government's role in the economy. Given that the Centre has undertaken major reforms in recent years—introducing a new Companies Act, overhauling civil and criminal laws and implementing GST—it was only logical to take the next step: Rewriting the Income Tax Act of 1961.

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The Income Tax Bill of 2025, presented in Parliament on Thursday, marks a significant moment. The draft law is structurally more coherent and eliminates redundant provisions that have outlived their relevance. Unlike the current Act, whose provisions are scattered across multiple sections, the new bill follows a logical and streamlined structure, making it easier to interpret.

Beginning with the removal of over-wrought definitions for 'previous year' and 'assessment year' and referring instead to 'tax year,' the Bill's language is clearer, concise and less prone to multiple interpretations, thereby reducing the potential for litigation. 

The alpha-numerical provisions have been replaced with sections and the Bill now has 536 of them, compared with more than 800. There are clear tables and charts (over 50), which will make it easy to follow the provisions. Many of these, like those pertaining to tax deducted at source (TDS) and non-profit organizations, are placed together in a coherent manner.

That said, the Bill does not seek to introduce substantive changes. Indeed, the basic character of the Act remains intact. Its broad heads of income, computation methodologies, set-off and carry-forward provisions for losses, the TDS mechanism, the appeals framework and the penalty and prosecution rules remain largely unchanged.

However, by simplifying the overall legal framework for taxation and improving clarity, the Bill creates a strong foundation for deeper structural reforms in the future.

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The Bill has been referred to a Select Committee of Parliament, which has to revert with comments before the second part of the budget session. Thus, the Bill is expected to be enacted soon enough to pave the way for its implementation at the earliest.

The government has been soliciting feedback from industry chambers, professional bodies and other stakeholders on the reforms India's tax system needs. Thousands of recommendations have been submitted. 

These broadly focus on: a) Minimizing tax litigation, ensuring faster dispute resolution by setting clear timelines for it and providing for settlements reached without litigation; b) Simplifying the compliance burden of taxpayers by streamlining provisions such as for TDS to make them more practical and less litigation prone; c) Facilitating corporate restructuring by making business mergers, de-mergers and re-organizations more seamless and tax-efficient; d) Rationalizing penalties and decriminalizing tax offences by ensuring that penal measures are proportionate to violations and ridding the law of criminal provisions where they are unnecessary.

No doubt, these discussions are underway in the finance ministry. Over time, we can hope to see amendments aimed at addressing these concerns and further improving the country's tax framework. For now, the Income Tax Bill 2025 sets the stage for a modern and stable tax regime through a law that is easier to understand, reader-friendly and well placed for future reforms.

The author is CEO, Dhruva Advisors.