The passage of the New Income Tax Act, 2025 is a landmark development towards building a streamlined, simplified tax framework aimed at enhancing transparency, equity, and economic efficiency. Enacted by Parliament after intensive deliberation, the legislation reflects the Government of India’s commitment to modernizing the tax architecture in alignment with global best practices and domestic aspirations. By simplifying tax slabs, rationalizing exemptions, and integrating digital compliance mechanisms, the Act seeks to reduce administrative burdens while fostering a culture of voluntary compliance.

To modernize and simplify India’s outdated tax laws, the government announced a comprehensive review of the Income-tax Act, 1961. This led to the introduction of the Income-tax Bill, 2025, which was referred to a Select Committee of Parliament for detailed examination. After receiving extensive recommendations and suggestions from stakeholders, the government decided to withdraw the original Bill and introduce a revised version - The Income-Tax (No. 2) Bill, 2025. This updated Bill incorporated most of the committee’s inputs along with improvements in legal clarity and drafting. It was passed by both Houses of Parliament in the monsoon session and now forms the foundation of India’s new tax framework

From Complexity to Clarity: Rationale Behind the New Income Tax Act

The Income-tax Act, 1961 was introduced to replace the earlier 1922 legislation, based on recommendations from the Law Commission (1958) and the Direct Tax Administration Enquiry Committee.

Here are the factors contributing to the complexity of India's Income-tax Act, 1961:

Extensive Amendments: The Act has been amended nearly 65 times with more than 4000 amendments over six decades through annual Finance Acts and 19 separate Taxation Laws Amendment Bills. While these changes were intended to keep the law relevant, they significantly increased its length and complexity.


Numerous Exemptions and Deductions: Over the years, the Act was repeatedly amended to include various exemptions and deductions to support socio-economic goals, such as encouraging savings, boosting exports, promoting balanced growth, and advancing social equity. These provisions included benefits for export income, investments in specific sectors or regions, and spending on rural development.