Opinion: An Income Tax law that finally speaks plain English

The effectiveness of the new law will depend on how clearly the accompanying rules are drafted. Frequent amendments and inconsistent interpretations could bring complexity back

By Dr CS Pitresh Kaushik, Dr Sushanta Kumar Mahapatra

For decades, filing income tax returns in India has been less about calculating taxes and more about decoding legal language. Even educated taxpayers often struggled with terms such as “previous year,” “assessment year,” endless provisos, scattered exemptions, and cross-references spread across hundreds of sections. Tax compliance became an exercise in interpretation rather than understanding. That may finally be changing.

---

With Parliament approving the Income-tax (No. 2) Bill, 2025, India has embarked on one of the most significant legal reforms in direct taxation since the Income Tax Act of 1961. The reform is not about introducing new taxes or increasing tax rates. Instead, it seeks to make the law more accessible, transparent, and taxpayer-friendly. At a time when India is rapidly digitising governance and aiming to improve the ease of doing business, simplifying tax legislation is both timely and necessary.

As Simple As That

The most striking feature of the new legislation is its simplicity. The sprawling six-decade-old Act has been reduced from nearly 47 chapters and around 819 effective provisions to just 23 chapters and 536 sections. Hundreds of lengthy provisos and explanations have been absorbed into the main provisions, eliminating much of the complexity that accumulated through decades of amendments. Rather than forcing taxpayers to navigate an intricate legal maze, the new law presents rules in shorter sentences, clearer language, and structured tables.

Perhaps the most welcome change is linguistic rather than fiscal. The confusing distinction between the “previous year” and the “assessment year” disappears, replaced by the far more intuitive term “tax year.” This may appear cosmetic, but for millions of salaried employees and first-time taxpayers, it removes one of the most persistent sources of confusion. A single reference point makes tax calculations easier to understand while leaving the “financial year” to govern compliance deadlines and administrative procedures.

Organisation has also received overdue attention. Under the earlier law, provisions relating to salaries, gratuity, leave encashment, voluntary retirement benefits, pensions, and retrenchment compensation were scattered across different sections, forcing taxpayers and professionals alike to move repeatedly between chapters. The new Act groups these related provisions together, making it significantly easier to determine taxable income without constantly cross-checking multiple clauses.

Similarly, exemptions that once crowded Section 10 have been shifted into well-organised schedules, while provisions governing charitable and non-profit organisations are brought together in dedicated parts of the legislation. This restructuring will particularly benefit trusts, educational institutions, and donors who have long struggled with fragmented compliance requirements.

Perhaps, the most welcome change is linguistic rather than fiscal. The confusing distinction between the ‘previous year’ and the ‘assessment year’ disappears, replaced by the far more intuitive term ‘tax year’

Another area receiving substantial attention is Tax Deducted at Source (TDS) and Tax Collected at Source (TCS). Instead of requiring taxpayers to search through numerous sections for rates, thresholds, exemptions, and applicable categories, the new law presents much of this information through simplified tables. Whether one is dealing with contractor payments, rent, bank interest, e-commerce transactions, or lottery winnings, the applicable rates and thresholds can now be located much more easily.

Take rental income as an example. The revised framework clearly specifies the applicable TDS rate once monthly rent crosses the prescribed threshold, identifies the responsible deductor, and explains the relevant exceptions in one place. Such presentation reduces ambiguity and minimises errors in compliance.

Importantly, the legislation preserves continuity where it matters most. It does not alter existing tax rates or tax regimes. The tax relief announced in Budget 2025 continues unchanged. Individuals opting for the new tax regime continue to enjoy zero income tax liability up to Rs 12 lakh through the enhanced rebate under Section 87A, while salaried taxpayers effectively remain tax-free up to Rs 12.75 lakh after accounting for the standard deduction. Taxpayers should, however, bear in mind that income subject to taxation at special rates, including certain categories of capital gains, is not eligible for this rebate.

Existing Rights, Liabilities

The law has come into force with effect from 1 April 2026, providing sufficient time for the Income Tax Department, employers, banks, financial institutions, and software providers to align their systems. Equally important is the inclusion of a comprehensive “Repeal and Savings” provision that protects existing rights and liabilities during the transition. The government’s proposed section-wise “old-to-new” navigation guide should also ease the adjustment for tax professionals accustomed to the 1961 Act.

Beyond legal drafting, the reform reflects a broader shift in India’s approach to public administration. The country has increasingly embraced digital governance through faceless assessments, online return filing, pre-filled tax forms, Aadhaar-linked verification, and data-driven compliance. However, technology alone cannot simplify governance if the underlying law remains difficult to comprehend. Digital interfaces become genuinely user-friendly only when the legal framework itself is written in language that ordinary citizens can understand.

This reform also aligns with India’s broader ambition of improving the ease of doing business. Investors and entrepreneurs value not only competitive tax rates but also certainty, predictability, and simplicity. A tax code that is easier to interpret reduces compliance costs, lowers litigation, and improves voluntary compliance. Internationally, countries that have modernised tax administration have often coupled digital transformation with legislative simplification. India’s latest reform follows this global trend.

Drafting Challange

Yet simplification alone cannot eliminate every challenge. The effectiveness of the new law will ultimately depend on how clearly the accompanying Rules, Forms, and administrative guidelines are drafted. Frequent amendments, inconsistent interpretations, or excessive procedural requirements could gradually reintroduce the very complexity the reform seeks to remove. Continuous taxpayer education, robust digital support, and transparent implementation will, therefore, be crucial.

The larger significance of the Income-tax (No. 2) Bill lies in its philosophy. Rather than asking citizens to navigate legal jargon, the law now attempts to communicate in plain English. It recognises that tax compliance should not require specialised legal expertise for routine transactions. A simpler statute can improve voluntary compliance, reduce inadvertent mistakes, minimise disputes, and build greater trust between taxpayers and the state.

India has not introduced a new tax system; it has introduced a new way of reading tax law. In an era where governance increasingly emphasises citizen-centric services, plain language is not merely a drafting choice; it is a democratic necessity. If implemented effectively, this reform could transform tax compliance from an annual exercise in confusion into a process that is transparent, predictable, and accessible to every taxpayer. That, perhaps, is the most meaningful tax reform of all.

 

(Dr CS Pitresh Kaushik teaches at Doon Business School, DBS Global University, Dehradun, Uttarakhand. Dr Sushanta Kumar Mahapatra teaches at the Department of Economics, ICFAI School of Social Sciences, ICFAI Foundation for Higher Education [IFHE] Deemed University, Hyderabad)