On 13th February, Thursday, Finance Minister Nirmala Sitharaman will present the new Income Tax Bill in Parliament. The government claims that it will simplify the existing Income Tax Act 1961 and make the Income Tax Act more understandable for the common man.
This new Income Tax Bill will be smaller in size in comparison to the existing Income Tax Act 1961. However, there will be more sections and schedules in the new income tax bill. The new bill of 622 letters will have 536 sections in 23 chapters and 16 schedules, whereas the existing Income Tax Act has 298 sections.
Tax Year:
Apart from this, the concept of ‘Tax year’ has been added in the new bill. In the current law, terminology like ‘Assessment year’ and ‘Previous year’ creates confusion while filing returns. However, Tax year will make things easier. In the new bill, the word section has also been removed and clause has been introduced.
Digital Assets:
Digital assets have also been kept in undeclared income like cash, bullion and jewellery. The government has made it clear that only chartered accountants will continue to do the audit. Previously, it was being said that company secretaries can also do the audit.
Additionally, the limit of auditable income has been increased by 50% from 2 to 3 crores. Now, the date of filing the tax audit report will be 31st October instead of 30th September. The new Income Tax Act will come into force from 1st April 2026 and the first tax year will be 2026-27.
A per the new bill, assessments will be AI based. Bank accounts will be linked to income tax. GST filing and IT returns will be processed in real time. Companies will not get deduction for expenses on CSR training.
People will not be able to avail exemption for expenses related to fraud in business and insider trading. Earlier there was no provision for this. Banks and NBFCs used to get 8.50% deduction on bad debt. Now it has been made 5% for NBFCs.
In addition, the department will be able to provide relief in TDS provision on the demand of the taxpayer. Earlier the department did not have the authority.
There will be Rs 500 per day penalty for not filing TDS return. Earlier the penalty was around Rs 10,000 to Rs 1 lakh. Startups, self-help groups, digital transactions are also within the scope of income tax exemption and deduction.
Electronic records, digital evidence etc. can be virtually seized during Income Tax search. The notices sent in electronic mode for search, seizure and assessment have also been given legal recognition.
It was mentioned in the IT Act, but not in the Income Tax. If the taxpayer proves the ownership of the property seized in the search and pays the tax, then he gets the property back in time.
In the Income Tax Act, income from farms located near urban areas is considered as capital gain and not agricultural income. Previously, there was no clarity on how the distance of farm from the city should be measured. Now this distance will be considered on the basis of air distance and not by the road distance.
Earlier, tax was levied on the annual value of unsold property. Now, tax will not be levied for two years. There will be exemption for two years.
As per the bill, there will be jail term for tax evasion of more than Rs 50 lakh, penalty of up to Rs 25,000 for 6 months delay on individual income tax payers. For companies it will be Rs 5 lakh.
Penalties:
The penalty for not maintaining an account has been increased from Rs 25,000 to Rs 50,000. Additionally, there will be 100% penalty on cash transactions of more than Rs 2 lakh and reporting will be mandatory for cash deposits of more than Rs 10 lakh.