New Income Tax Bill 2025 To Introduce ‘Tax Year’: Know Key Details

The New Income Tax Bill, 2025, proposed by the Ministry of Finance to introduce the concept of a 'Tax Year' to replace the existing 'Assessment Year' and 'Previous Year.’ from the Income Tax Act, of 1961. The Bill was announced on February 1, 2025, during the Union Budget presentation and is expected to be introduced in Parliament in the third week of February. This new tax law will apply to all regions in India. The introduction of the 'Tax Year' concept aims to simplify tax filing procedures by replacing the multiple terminologies currently used and this change is intended to clarify the period for tax payments, income tax return filing, and other compliances required under the Income Tax Bill, 2025.

What is the Tax Year Under the New Bill?

Under the Income Tax Bill 2025, the tax year is defined as twelve months, beginning April 1st and ending March 31st of the following year. This remains consistent with the existing financial year structure. However, for newly established businesses or sources of income, the tax year will begin with the following:

1. The date of setting up the business or profession
2. The date when a new income source comes into existence

The tax year for these cases will end on March 31st of that same financial year.

Highlights of the Tax Year Concept

• Simplification of tax compliance: The removal of terms like “assessment year” and “previous year” aims to reduce taxpayer confusion.
• Global alignment: Many countries use a similar tax year concept, making international taxation and financial reporting easier.
• Continuity of financial year: Despite the change in terminology, the financial year remains from April 1st to March 31st.
• Reduced errors in tax filing: Eliminating assessment year-related complexities will help taxpayers file returns accurately and avoid unnecessary tax disputes.

How New Income Tax Bill 2025 simplify the legal framework?

The new Bill reduces the length of tax legislation from 823 pages to 622 pages by eliminating redundant provisions. The number of chapters remains unchanged at 23, but sections have increased from 298 to 536, providing a clearer structure. Schedules have also increased from 14 to 16, ensuring better categorization of exemptions and deductions.

Current Income Tax System vs. New Tax Bill

Challenges with the Existing System

Currently, taxpayers in India follow the assessment year system, which refers to the year following the financial year in which income is earned. Many individuals and businesses face confusion when filing returns due to:

• Misinterpretation of assessment year vs. financial year
• Errors in tax payments, leading to refunds and penalties
• Complexities in advance tax and self-assessment tax payments

The new tax bill aims to address these issues by introducing a single, straightforward tax year concept.

What will be the Impact on Taxpayers?

From the New Income Tax Bill 2025, taxpayers including individuals, businesses, and governments would be impacted from the same years only. For Individuals, Filing tax returns will become more intuitive, as the income earned in a financial year will be assessed in the same tax year. Businesses like those who are going for Startups and newly registered businesses will find tax compliance easier, as their tax year will begin from their establishment date and end on March 31 & for the Government, the streamlined approach will enhance tax administration efficiency and reduce errors in tax collection and processing.

Conclusion

The Income Tax Bill 2025 marks a significant step toward tax law simplification. By eliminating the complex distinction between the assessment year and the previous year, the introduction of a single tax year concept is expected to improve taxpayer compliance and ease the process of tax filing. While the financial year remains unchanged, this shift will make tax regulations more user-friendly and transparent for both individuals and businesses.