Is the New Income Tax Law More Accessible?

Is the New Income Tax Law More Accessible?

Why in News?

The Indian Parliament recently passed the Income Tax Bill, 2025, during the ongoing monsoon session, replacing the Income Tax Act of 1961. The new law is being hailed as more concise, simplified, and user-friendly, but it also introduces controversial provisions that may increase the scope of intrusion by tax authorities. This has sparked nationwide debates on whether the new legislation is truly more accessible or whether it raises fresh concerns regarding privacy and fairness.

Introduction

The Income Tax Act of 1961 has governed India’s direct taxation system for over six decades. Over time, it has undergone numerous amendments, making it lengthy, complex, and often difficult for the average citizen to understand. Recognizing these challenges, the government introduced the Income Tax Bill, 2025, with the stated objective of simplifying the tax code, reducing ambiguities, and providing clearer guidelines.

The Bill reduces the number of chapters from 47 to 23, and the number of sections from 819 to 536. It also increases the use of tables and formulas, enhancing clarity, and simplifies language by removing jargon. The government has presented it as a major reform that will make compliance easier and minimize harassment by tax officials.

However, while the Bill has positive features such as codification of taxpayer-friendly measures and rectification provisions, it also includes problematic sections, particularly those dealing with searches and seizure of digital information. Critics argue that such provisions could compromise privacy rights and give disproportionate powers to tax authorities.

Key Issues and Institutional Concerns

1. Need for a New Law

The primary reason for drafting a new tax law was that the 1961 Act had become outdated and cumbersome. Over 60 years of amendments had led to inconsistencies, duplication, and complexities. Taxpayers, especially small businesses and individuals, often found it difficult to interpret the provisions without professional assistance.

The new Bill aims to:

• Simplify compliance by reducing technical jargon.

• Provide clarity by adding tables and formulas.

• Reduce litigation by offering examples for better understanding.

2. Evolution of the Income Tax Bill 2025

The Bill was first introduced in February 2025 by Finance Minister Nirmala Sitharaman. Its stated purpose was not to alter tax rates or slabs but to streamline and rationalize the existing system. Initially, it was referred to a Select Committee, headed by Baijayant Panda, which submitted its report in July 2025.

Based on these recommendations, the government withdrew the original version and reintroduced a revised version on August 11, 2025, which was passed in the Lok Sabha without debate. This process indicates the government’s intent to avoid confusion from multiple drafts and ensure a single, updated law.

3. What Has Changed in the New Bill?

Some of the notable changes include:

• Separation of MAT and AMT provisions into two sub-sections for greater clarity.

• Taxpayer-friendly reforms such as allowing individuals to update their tax returns up to four years from the relevant assessment year. This enables corrections without penalty.

• Assessments codified: Clear guidelines have been provided regarding which assessments can be reopened, with a maximum look-back period of five years.

These measures are expected to reduce harassment, improve compliance, and instill confidence among taxpayers.

4. Controversial Provisions – Search and Seizure Rules

Despite its simplification goals, the new law expands the scope of intrusive provisions. Under the 1961 Act, tax officials already had powers to inspect books and records. They could break open locks of safes, lockers, or almirahs if necessary.

The 2025 Bill goes further:

• It mandates that anyone in possession or control of electronic documents or information must provide “reasonable technical and other assistance” to tax officials.

• Importantly, taxpayers may be compelled to share passwords for digital devices, emails, and even social media accounts.

• If a taxpayer refuses, officials have the authority to override access codes and directly gain entry into electronic systems.

These provisions raise serious privacy concerns, as they go beyond professional data and extend into personal communications. Critics fear this may be misused for surveillance and harassment.

5. Justification and Concerns

The government defends these provisions by arguing that in the modern digital age, tax evasion often involves sophisticated use of technology and hidden electronic records. To ensure effective enforcement, tax officials need stronger powers.

However, dissenting members of the Select Committee noted that:

• The provisions could compromise personal privacy.

• They may discourage voluntary compliance due to fear of intrusion.

• Citizens could be forced to reveal sensitive personal data unrelated to taxation.

This tension between efficient enforcement and citizen privacy rights is now at the heart of the debate.

Challenges and the Way Forward

1. Balancing Simplicity and Enforcement
   While the simplification of language and reduction of sections is commendable, the expansion of surveillance powers risks undermining trust in the system. The government must strike a balance between ease of compliance and enforcement.

2. Ensuring Data Privacy
   Mandatory sharing of social media or email passwords could set a dangerous precedent. Safeguards must be created to limit searches only to tax-related documents, avoiding fishing expeditions into personal life.

3. Need for Parliamentary Debate
   Critics have pointed out that the Bill was passed without debate in Parliament. Given its long-term implications, more discussion and consultation could have addressed many concerns.

4. Technology-Driven Compliance
   Instead of intrusive searches, the government could focus on AI-driven data analytics and information sharing between financial institutions to detect tax evasion patterns.

5. Building Trust with Taxpayers
   Tax reforms are sustainable only when citizens perceive the system as fair, transparent, and non-intrusive. The government must ensure that the new law is implemented with accountability and oversight to prevent misuse.

Conclusion

The Income Tax Bill 2025 represents one of the most significant overhauls of India’s tax system in decades. By simplifying language, reducing sections, and codifying taxpayer-friendly measures, it takes a major step toward accessibility and compliance.

However, the expanded powers of tax officials, especially regarding electronic data, have sparked intense debates. While the government views them as essential for tackling modern tax evasion, critics fear they could compromise privacy and civil liberties.

Ultimately, the success of the new law will depend on its implementation. If used responsibly, it could mark a turning point in India’s tax administration. If misused, it risks eroding trust between the government and taxpayers.

Q&A Section

Q1. Why was the Income Tax Bill 2025 introduced?
The Bill was introduced to replace the outdated Income Tax Act of 1961, which had become overly complex after decades of amendments. The new Bill aims to simplify compliance, reduce litigation, and make the law more accessible to the average taxpayer.

Q2. What are the key simplifications in the new Bill?
The Bill reduces chapters from 47 to 23, sections from 819 to 536, and increases the use of tables and formulas. It also simplifies language, removes jargon, and provides examples for better clarity.

Q3. What are the major taxpayer-friendly provisions?
Taxpayers can now update their income tax returns up to four years after the relevant assessment year. Clear codification of reassessment rules has also been provided, limiting reopening of assessments to five years.

Q4. Why are some provisions of the new law controversial?
The new law expands search and seizure powers of tax officials, requiring taxpayers to share passwords of emails and social media accounts if demanded. This raises concerns about privacy violations and misuse of authority.

Q5. What is the way forward for effective implementation?
The government should ensure strict safeguards against misuse of search powers, encourage technological solutions to detect tax evasion, and focus on building trust with taxpayers by ensuring transparency and accountability.