What FM Sitharaman’s New Income Tax Bill Offers to India Inc

Finance Minister Nirmala Sitharaman tabled the new Income Tax Bill 2025 in Parliament for consideration today. Alongside it, the Finance Ministry released a Frequently Asked Questions (FAQ) document outlining key aspects of the proposed bill.

The legislation aims to replace the Income-tax Act, 1961, with a simplified version, reducing the number of chapters by almost half. It now contains 536 sections instead of the previous 819 and introduces more tables and formulas to ease compliance.

The government says the new bill reduces fragmentation, removes redundant provisions, and improves readability. It also claims that the bill advances the Modi government’s "ease of doing business" initiative by providing a clear and simple tax framework.

For now, the bill has been referred to a Select Committee of Finance, which will submit its report on the first day of the second part of the ongoing Budget Session.

What the New Income Tax Bill Offers to Businesses

According to taxation experts, while the bill improves coherence and structure, it does not alter compliance requirements.

"One major shift is the clubbing of all withholding tax provisions under Clause 393. This could reduce the compliance burden by eliminating the need for multiple challans for withholding tax payments," said Rahul Charkha, Partner at Economic Laws Practice. He also noted that replacing the term “assessment year” with “tax year” aligns India’s tax framework with international standards.

Additionally, the bill adopts less technical terminology—for instance, replacing “notwithstanding” with “irrespective,” said Gaurav Makhijani, Associate Partner at Rödl & Partner.

"The fundamental intent and scope of India’s tax framework remain largely intact, with no major shift in the overall tax burden. This represents stability," Makhijani added.

Consolidation of TDS Provisions

The new Income Tax Bill consolidates all TDS provisions into a single section, introducing 57 tables and 46 formulae to simplify compliance.

"Formula-based explanations have been added to clarify complex concepts that were previously difficult to understand, such as the definition of written-down value," according to an FAQ shared by Taxsutra.

The bill also groups similar provisions together, such as deductions on employee welfare, which were previously scattered across different sections.

Taxing MNCs and Foreign Companies

It was earlier reported that the new bill might introduce major changes in taxation for foreign tech giants and multinational corporations (MNCs).

"Provisions related to international taxation have been dealt with, broadly, to ensure tax certainty," the Finance Ministry said in its FAQ.

However, according to Tillmann Ruppert, Partner at Rödl & Partner, for foreign investors and non-resident taxpayers, the law appears more or less unchanged in its effect.

Under the current provisions of the Act, non-residents earning income from certain business activities are allowed a simplified taxation regime. Currently, these presumptive taxation schemes are spread across five sections, according to Taxsutra. The proposed bill simplifies these schemes by consolidating identical provisions into one section, presenting them in a clear table format, and listing eligibility conditions separately. This improves clarity, readability, and significantly reduces text length.

What Happens to Past Litigations?

According to Economic Laws Practice’s Charkha, the new Income Tax Bill does not apply to past tax litigation matters.

“Clause 536, pertaining to repeal and savings, provides that the provisions of the repealed Income-tax Act shall continue to apply to any proceedings (including notices, assessment, re-assessment, rectification, penalty, reference, revision, and appeals) in respect of any tax year beginning before 1 April 2026, and such proceedings shall be carried out as per the procedure specified in the repealed Act,” he said.

He added that the simplified and transparent provisions are expected to lower the incidence of disputes, making the tax system more predictable and business-friendly.

Amit Gupta, Partner at Saraf and Partners, said the government is trying to reduce litigation through measures such as more structured criteria for tax scrutiny, higher thresholds for departmental appeals, reviving the advance ruling and dispute resolution/settlement mechanisms, updated returns, and schemes like Vivad Se Vishwas.