Finance Minister Nirmala Sitharaman has confirmed that the long-anticipated new income tax bill, designed to replace the six-decade-old Income Tax Act of 1961, is set to be introduced in the Lok Sabha in the coming week. The Union Cabinet, chaired by Prime Minister Narendra Modi, granted its approval for the bill on Friday, marking a significant step toward reforming India’s taxation system. Following its introduction in Parliament, the bill will be referred to a parliamentary standing committee for a thorough review and scrutiny before proceeding further in the legislative process. Sitharaman highlighted that even after the committee's recommendations are incorporated, the bill will return to the Cabinet for final approval before it is once again presented in Parliament for enactment.
During a media briefing after her post-Budget meeting with the central board of directors of the Reserve Bank of India (RBI), Sitharaman stated, “Yesterday, the Cabinet cleared the New Income Tax proposal, I hope to have it introduced in the Lok Sabha in the coming week. Post that, it will go to a committee.” She underscored that the process remains intricate, with multiple critical stages ahead before the new taxation framework is implemented.
The decision to revamp the Income Tax Act was first announced during the July 2024 Budget speech, as part of a broader agenda to modernize India’s tax laws. The Central Board of Direct Taxes (CBDT) subsequently established an internal committee to conduct a comprehensive review and simplify the existing provisions. The primary objective of the overhaul is to make the tax laws more transparent, concise, and easier to understand, thereby minimizing legal disputes and reducing litigation. By providing greater tax certainty, the government aims to create a more predictable environment for both individuals and businesses. To ensure a meticulous examination of all aspects of taxation, 22 specialized sub-committees have been formed, each focusing on a specific domain within the Income Tax Act.
Addressing concerns over customs duty rationalization, Sitharaman explained that the effort to streamline India’s tariff structure has been ongoing for the past two years. She highlighted that in previous years, the government had introduced measures to phase out certain anti-dumping duties that were originally meant to provide temporary protection to domestic industries. The Finance Minister emphasized that while safeguarding India's manufacturing sector, particularly MSMEs remains a priority, indefinite protectionism is not sustainable. Instead, the government will conduct periodic reviews of these duties and extend them only in exceptional cases where continued support is justified. “We want to make India a lot more investor-friendly and trade-friendly, while at the same time balancing it with Aatmanirbhar Bharat, where we need to have production, particularly through MSMEs. We will provide the tariff protection as required by the industry,” she stated.
As part of the customs tariff restructuring initiative that was first announced in the July 2024 Budget, Sitharaman revealed a significant simplification in the February 1, 2025 Budget. The latest proposal seeks to eliminate seven tariff rates, adding to the seven that were removed in the previous financial year. As a result, India will now have only eight tariff rates, including a ‘zero’ rate category, making the taxation structure for industrial goods more streamlined and predictable. This move is expected to ease compliance burdens for businesses and enhance trade efficiency by reducing complexities in customs duties.
Through these extensive reforms, the government aims to modernize India’s taxation regime, foster economic growth, and create a business-friendly environment. The new income tax bill is expected to introduce greater clarity and efficiency into the tax system, benefiting both individuals and corporate entities. The customs duty rationalization, on the other hand, aligns with the government’s broader vision of making India a global manufacturing hub by ensuring that trade policies remain competitive, transparent, and conducive to industrial expansion.
With the proposed tax reforms and the overhaul of the tariff structure, Sitharaman reaffirmed the government’s commitment to enhancing economic stability and boosting investor confidence. While the legislative process for the new tax bill is still in its early stages, the upcoming deliberations in Parliament and the subsequent committee reviews will play a crucial role in shaping India's future tax landscape.
