New Income Tax Bill to introduce 'tax year’, replace definitions with formulas

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Subscribe to enjoy similar stories. New Delhi: The new Income Tax Bill, which is likely to be tabled in Parliament this week, will introduce the term ‘tax year’ to specify the year of earning income for which the tax liability is computed. The bill will also replace verbose definitions with formulas and simplify the tax statute, two persons familiar with the development said.

Currently, the Income Tax Act refers to the year of earning taxable income as the "previous year" and the year when the tax return is filed as the “assessment year". By dropping these terms, which are used multiple times throughout the Act, including in some cases within the same provision, the bill seeks to make the language simpler and the tax statute easier to comprehend. The new bill is also expected to use formulas rather than complicated definitions for various concepts like capital gains, cost of acquisition and inventory valuation.

This could help reduce errors and prevent differing interpretations, they said. The Income Tax Bill has 23 chapters, divided into 536 sections and 16 schedules spread over 600 pages, compared to the Income Tax Act, which has 823 pages, as amended by the Finance Act of 2024, one of the persons quoted above said. A statement on the objectives of the bill, which aims “to consolidate and amend the law relating to income tax," is part of the document to be tabled in the House.

It acknowledges that the existing law passed in 1961 has been subject to numerous amendments since its passage, which has overburdened the basic structure of the law. These changes have made its language complex and increased the cost of compliance for taxpayers while hampering direct-tax administration’s efficiency, the person said. The bill