New Delhi, Feb 7 (PTI) The new Income Tax Bill, which will replace the six-decade old Income Tax Act of 1961, will make direct tax laws simple to understand, remove ambiguities and reduce litigations.

The law, which is expected to be tabled in Parliament in the Budget session, will go to the Standing Committee on Finance for further scrutiny, Finance Minister Nirmala Sitharaman has said.

Finance Secretary Tuhin Kanta Pandey has already indicated that the new Bill will not have provisos and explanations or long sentences. It will be tax neutral.

Following is an explainer of what the government intends to do and what can the new law hold for taxpayers: Q. Why is a review of the I-T Act needed? A. Income tax law was enacted about 60 years ago in 1961 and since then a lot of changes have taken place in the society, in the way people earn money and companies do business. The 1961 Act was framed at a time when Indian republic was young and faced challenges peculiar to those times. Over the time, as the country progressed, the Income Tax Act was amended to keep pace with changing times. Presently, technology has changed the way people pay taxes and file return of income. There is also a system where ITR forms are pre-filled based on data available to the tax department from various other sources, like TDS statement filed by banks, employers, forex dealers and at the time of property transactions.

In view of the technological advancement and changes in the socio-economic fabric of the country, there is a pressing need to completely overhaul the archaic Income Tax Act which has become bulky on account of hundreds of amendments in the law. It was become almost impossible for the common man to comprehend the law and multiple references to different sections, sub-sections, and provisos.

Q. What did the Finance Minister announce? A. Finance Minister Nirmala Sitharaman in her Budget speech on July 23, 2024, had announced a comprehensive review of the Income Tax Act, 1961, within six months. The purpose of the review is to make the Act concise, lucid, easy to read and understand, Sitharaman had said in her July 2024 budget speech. This will reduce disputes and litigations, thereby providing tax certainty to the taxpayers. It will also bring down the demand embroiled in litigation, she had said.

In her 2025-26 Budget speech on February 1, 2025, she announced that the Bill will be introduced in Parliament in the ongoing Budget session.

Q. What the new Income Tax Act proposes to do? A. The new law is expected to be leaner and more reader-friendly, which even a common man could comprehend. The intention of the government is to halve the volume and make the language simpler so that taxpayer can know his exact tax liability. It would also help in reducing litigations and thereby cut down on disputed tax demands.

Q. How will the new law will be leaner? A. The Income Tax Act, 1961, deals with imposition of direct taxes -- personal I-T, corporate tax, securities transaction tax, besides gift and wealth tax. The Act currently has about 298 sections and 23 chapters. Over the time, the government has abolished various levies including wealth tax, gift tax, fringe benefit tax and banking cash transaction tax.

Also, the new income tax regime from 2022 had added to the size of the I-T Act as it necessitated amendment. Accordingly, several sections have been amended, added, removed or have become obsolete over the last 6 decades. The new Act will be free of all the amendments and sections which are no longer relevant. Also the language will be such that people can comprehend it without any assistance from tax experts.

Q. Will it mean a higher tax burden for common man? A. In all likelihood, the whole exercise will be undertaken in a revenue neutral manner as the objective would be to simplify the language and compliance procedures. Tweaking income tax rates in the new Income Tax law is unlikely as it is usually done through Finance Act which is part of the Union Budget presented in Parliament every year on February 1. All amendments announced in FY26 Budget will be incorporated in the new Bill.

Q. Has the government made any attempts in the past to come out with a new income tax law? A. In 2010, 'The Direct Taxes Code Bill, 2010' was introduced in the Parliament. It was referred to the Standing Committee for scrutiny. The Bill, however, lapsed because of the change in government in 2014. In November 2017, the government had set up a six-member committee to redraft the Income Tax Act. The panel had submitted its report to finance minister in August 2019. PTI JD CS ANZ HVA

Income tax overhaul to simplify law and remove obsolete provisions, maintaining revenue neutrality and easing compliance. The new Income Tax Bill will replace the 1961 Act by removing obsolete and amended provisions, shortening and simplifying statutory language to reduce ambiguity and litigation, and is intended to be revenue neutral rather than change tax rates; the Bill will be tabled in the Budget session and referred to the Standing Committee for scrutiny.