Recently, the Union Finance Minister introduced the Income-Tax Bill, 2025, in Parliament . If enacted, it will replace the Income-Tax Act, 1961. 

Income-Tax Bill, 2025

• Objective: The Income-Tax Act, 1961, has become complex and unclear due to numerous provisos, exceptions, and non-obstante clauses. The new Bill aims to reduce litigation and create a fairer, more predictable tax system.
• Concerns: Despite claims of simplification, many ambiguities and complexities from the 1961 Act remain. The Bill also expands the government’s powers, raising concerns over authoritarian provisions.
• Global Examples: Many jurisdictions worldwide are moving towards plain language drafting to make laws more accessible and transparent. Simplified laws enhance government accountability and improve compliance.
  • For ex: United Kingdom has simplified Tax laws in 2009
• Improving Compliance: Some argue that technical legal language ensures greater accuracy. However, global examples suggest that clearer tax laws can reduce disputes and improve compliance without sacrificing precision.

Challenges Associated with Income Tax Bill 2025

• Lack of Clarity: Despite claims of clarity and accessibility, the Income-Tax Bill, 2025, remains dense and convoluted. 
  • Mere word substitutions (e.g., replacing “notwithstanding” with “irrespective”) do not meaningfully improve comprehension for the common taxpayer.
• Marginal Improvements: Some outdated provisions have been removed, and certain definitions streamlined. Timelines and compliance requirements have been consolidated into tables and schedules. 
  • However, these changes could have been introduced through amendments rather than a complete legislative overhaul.
• Litigation Risk: The shift of compliance details to tables and schedules does not eliminate legal ambiguities. Cross-references across sections still make the law difficult to interpret and prone to disputes.
• Retention: The Bill incorporates provisions from the Income-Tax Act, 1961, making the repeal ineffective.
  • Example: The definition of “income” under Section 2(49) still refers to Section 2(24) of the 1961 Act. This defeats the purpose of a fresh law, as taxpayers must still refer to the old legislation.
• Increase in Litigation: The Bill retains the core philosophy of the 1961 Act while modifying its wording. Judicial precedents based on the old law may need reinterpretation, leading to legal uncertainty.
  • Example: Reopening of tax assessments now depends on “information,” a term linked to undefined executive strategies, increasing scope for disputes.
• Search and Seizure Powers: The Bill broadens the powers of tax officials to search and seize digital assets. Authorities can inspect “any information stored in electronic media or computer systems,” including:
  • Emails
  • Social media accounts
  • Digital applications
  • Officials may override access codes to gain entry, marking a significant shift from current law.
• Privacy : The Supreme Court’s Puttaswamy judgment (2017) upheld the right to privacy, making unchecked searches legally questionable.
• Lack of Oversight: The Bill offers no judicial oversight over digital intrusions. Authorities can withhold the reasons for conducting searches, raising concerns over misuse.

Solutions and Recommendations

• Amend the Existing Law: Instead of a complete overhaul, introduce targeted amendments to the Income-Tax Act, 1961.
• Plain and Clear Language: Draft tax laws in simple, precise language to enhance accessibility for taxpayers.
• Ensure Judicial Oversight: Introduce safeguards against arbitrary use of search and seizure powers. Require tax authorities to obtain judicial approval before conducting digital searches or overriding access codes.
• Revise Draconian Provisions: Remove excessive executive discretion in reopening tax assessments and defining “information” for tax inquiries.

Conclusion

Rather than a complete overhaul, a targeted amendment of the 1961 Act could be more effective. The Bill’s failure to simplify the tax code and its authoritarian provisions on search and seizure necessitate serious reconsideration by the Parliamentary Select Committee.

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