Seven shortcomings of the New Income Tax Bill, CFO News, ETCFO
The newly introduced Income Tax Bill, aimed at simplifying tax laws, has sparked debate over its effectiveness in reducing litigation and easing compliance. While the Bill claims to modernise tax legislation, several shortcomings highlight its limited scope for substantive reform.
Finance Minister Nirmala Sitharaman introduced the Income Tax Bill, 2025, aiming to modernize India’s tax system. Key reforms focus on digital assets, remote work, and streamlined processes. Will these changes simplify taxation and benefit businesses in the digital economy? Here are the major provisions that have been revamped in the new Income Tax Bill, 2025:
Minimal substantive reformsThe Bill primarily reorganises provisions rather than introducing significant policy changes. While explanations and provisos have been converted into numbered sub-sections for readability, accessibility remains an issue. The tax base, procedures, and compliance framework remain largely unchanged, limiting the impact of the reform.
Incomplete implementation of simplification goals
Despite claims of reducing complexity, key definitions such as “income” remain unchanged from the 1961 Code. Provisions for reopening assessments, a major source of disputes, have also been retained despite past legal challenges. Structural improvements, such as tables and pointers, enhance presentation but do not simplify core tax law complexities.
The most pressing issue identified by 84% of respondents in a KPMG survey is the need for simplification of disputes and litigation, and areas of capital gains, business income calculations, and transfer pricing.
Potential increase in tax disputes
The Bill introduces stricter interpretations of expenditure deemed excessive, contradicting past court rulings on commercial expediency. New treaty interpretation rules limit the scope of international tax agreements, potentially leading to unintended tax disputes. Additionally, unclear language in certain provisions may create further ambiguity rather than resolving existing legal uncertainties.
Reduction in size
While media reports claim the Bill is 50% shorter than the 1961 Code, the actual reduction is only about 25%, mainly due to the removal of repealed provisions. Although outdated references like fringe benefits tax and super tax have been eliminated, the core tax structures remain largely the same.
Inconsistencies in treatment of Trusts
The Bill streamlines taxation for non-profits, educational institutions, and business trusts, offering more clarity. However, inconsistencies in the treatment of business trusts under previous laws had already led to multiple amendments, raising concerns over future clarity and stability.
Lack of alignment with global best practices
The Bill does not fully modernise tax provisions in line with international norms. The focus remains on legal structuring rather than addressing the evolving needs of businesses and taxpayers.
Need for clear roadmap
While the government had invited public comments, it has not clearly outlined a phase-wise roadmap for broader tax reforms. Experts argue that a more collaborative approach is necessary to ensure long-term tax certainty and dispute reduction.
