This year, in the monsoon session of the Parliament, the Income Tax (No.2) Bill was passed by both the Lok Sabha and Rajya Sabha and stands to come into force from 1st April, 2026 onwards. Reviewing the existing Income Tax Act of 1961 was announced in the budget session of 2024 by the current finance minister, and in lieu of the same, the new Act intends to update the Indian direct taxation policy instrument in accordance to the developments across the previous decades, making it lucid, coherent across other policies, and easy to administer. Plus, it also saves mounting disputes and litigations that occurred due to the particular mismatches between the complex evolutions in the financial and tax realms and the jurisdiction and procedural clauses of the earlier act.
The new bill, first introduced in the budget session in July 2024, was sent to a Select Committee composed of 31 members, led by MP Bijayant Panda. The Select Committee held 36 sittings and consulted organizations such as FICCI, CII, ICAI, E&Y, Azim Premji Foundation, NASSCOM, etc. Their report, consisting of a hefty 4500+ pages, was tabled on 21st July, 2025 and recommended a number of changes, most of which were accepted, at least quantitatively speaking. However, whether this is so in spirit remains contentious.
Another contention in the passage of this bill and its assent is the issue of perusal of parliamentary proceedings. As per the Finance Minister herself, the bill was not debated as rigorously as it should have for the 16 hours allotted to it, in each of the houses, were not utilized. The bill also coincided with the protests of the opposition against the contemporary election issues in Bihar. In both the houses, the bill was passed through voice voting. One can read in this a general issue of the unproductivity of parliamentary proceedings, which, in the monsoon session, utilized only 37 and 41 hours in the Lok Sabha and Rajya Sabha, respectively, out of the 120 hours available to each house for this session.
In this commentary, we go over a key issue of evaluating the development—whether the new Act is really new or a continuation of the old Act of 1961—through some of the controversies that have sprung since the passage of the new Act.
Grounds for Rationalization of the Old Income Tax, 1961
Ever since the promulgation of the Income Tax Act of 1961, it has undergone over 4000 amendments through the annual Finance Acts, and 19 specific Taxation Laws Amendment Bills. In this process of adapting it to changing contexts, the act had accrued several long-winded sentences and a general inaccessibility pervades it, best symptomized by the fact that certain sections had almost 100 provisos and explanations within the bare act, itself!
Moreover, since 2014, various reforms introduced by the incumbent government has led to a number of changes, most notable among them being gradual reduction of corporate tax rate with the phasing out of deductions and exemptions, new tax regimes, faceless assessments, sunset clauses in cases of tax exemptions, rationalizing of the TDS provisions, anti-avoidance rules, promotion of digitalization, and provisions for charitable entities, amongst others. Such changes had necessitated a review and reformation of the Indian direct tax regime.
Rationalization in the new Act has entailed reduction of over 2.5 lakh words, 24 chapters, or 283 sections through a number of means. Tables and formulae have increased to provide ease of access, 1200 provisos and 900 explanations are removed, and the many other redundant provisions which had stopped being applicable at earlier dates have been removed. Provisions relating to the same subjects, scattered into various chapters, have been consolidated, and references to other relevant acts have also reduced the voluminousness of the Act.
The review and drafting process was carried out under the oversight of an apex committee led by the Chief Commissioner of the Income Tax, and 26 sub-committees with 150 officers. Apart from an internal review, online solicitation yielded over 20 thousand suggestions and consultations with the Australian Tax office and Treasury and the United Kingdoms Office of Tax Simplification was also undertaken. Finally, the drafting process was carried out under the “Drafting Guide for Simplification of Laws” by the Legislative Department and the Ministry of Law and Justice, and the drafts were reviewed by the Central Board of Direct Taxes and Department of Legal Affairs.
Unincorporated Dissent and Suggestions by Members of the Select Committee
Though there is much that has been said in support and opposition to the new Act, most of those aspects are conceptually related to the question of whether the new Act can be considered a new or a revision of the old. In this regard, the select committee has observed that the new Act ensures continuity in taxation principles by simplifying it, but without disturbing the settled principles and jurisprudence. Such is also the analysis of independent stakeholders. Depending on one’s perspective, this can be deemed as a positive or a negative aspect. Thus, should someone be cautious of the non-observance of a dedicated debate and consultation within the parliament in the passing of this Act, this continuity can be read as fortuitous; and should someone read this from a vantage point of regarding the earlier direct tax infrastructure as problematic, this could be a rather worrying aspect.
These considerations have also informed the three dissent or unincorporated suggestions made by members of the Select Committee—Dr. Amar Singh, Shashank Mani and N.K. Premachandran. MP Premachandran has remarked, for example, that a ‘paradigm shift was felt [as] the need of the hour’ for which a policy overhaul was required and which the new Act does not match up to. One of the cautions that he writes is that “Largely, no substantive changes have been made through the [new] Bill. However, the few ones made appear to be lopsided and in favour of Revenue Authorities without providing a rationale for such change”. A similar sentiment pervades the dissent note by Dr. Amar Singh who has remarked that out of the many suggestions garnered by the Select Committee in their consultation processes, and the recommendations drafted on the basis of those, only the procedural ones and those without any substantive effect have been accepted or incorporated. Moreover, Dr. Amar Singh has also remarked that the new Act will be unable to deliver on its stated objective of reducing the litigatory and appeal related disputes that the old Act was criticized for. One of his critical suggestions is to set a timeline within which all the appeals must be settled.
A similar tenor pervades the issue raised by the two members that the new Act increases the powers of the tax administration officers which would go against the tax-payers and citizens, notably in the clauses 247, which pertains to “search and seizure” and 249, which pertains to the answerability of the income tax authority towards any person or authority or an Appellate Tribunal. The charge reads that the new Act authorizes a violation of privacy of the citizens. According to the speech by Nirmala Sitharaman in this Rajya Sabha, there are no new powers which have been assigned to the income tax authorities and the only change pertains to extending the powers towards digital devices, as the need of the hour demands. Rightfully so, one can read similarities of the two clauses in question above also in the 1961 Act within clause 132. Whether continuity in this regard is a good or a bad development depends on their vantage position, as we said earlier. Nevertheless, it must be mentioned that cautions against the ‘extractive’ mindset of tax authorities and the harassment of the tax payers is common against all the three unincorporated suggestions and dissent notes in the Select Committee along with being a matter of concern since the Raja Cheliah Report of 1992 and the more recent Tax Administration Reform Commission under the chairmanship of Dr. Parthasarathi Shome.
The question of newness also applies to more particular procedural issues such as those of the method of assessment of balance sheets of the government, itself, risk accounting to rationalize anti-avoidance, issues of transfer pricing, TDS, carry-forward rules, etc. as one can see from the unincorporated notes of the members of the Select Committee, mentioned above.
Conclusion
Whereas the gist of the current income tax reforms appears to be largely procedural and administrative heavy, it is a commonplace that such developments have the potential to impact the entire landscape of direct taxation in India. As to whether this will align with the persistent trends of the government to enable ease of access and reduce compliance burden along with increasing voluntary compliances plus widening the tax base of the nation, as has been suggested by various committees such as the Cheliah Committee and the TARC, will become clear as time passes. Although we have raised the question here whether and to what extent the new Act is novel, the definite answer to this question will be evaluated in its unfolding, next year onwards.
