India Gets a New Income Tax Law After 60 Years

Parliament on Tuesday passed the new income tax bill, replacing the six-decade-old Income Tax Act of 1961. The legislation aims to simplify direct tax laws, making them easier to read, understand, and implement.

The Rajya Sabha returned the bill to the Lok Sabha through a voice vote, as part of standard parliamentary procedure. The new law introduces the concept of a “tax year,” replacing the financial year and assessment year to reduce confusion for taxpayers.

The bill also expands the definition of “virtual digital assets” to cover crypto-assets, non-fungible tokens (NFTs), and other digital assets as specified by the government. It makes it mandatory for taxpayers to provide access to virtual spaces, including social media accounts, email servers, and cloud storage, during search operations.

Finance Minister Nirmala Sitharaman assured that the Central Board of Direct Taxes (CBDT) will issue standard operating procedures for handling digital data during searches to safeguard taxpayer privacy. She also emphasized that computer systems across the department need to be “rebooted” in preparation for the new law by April 1, 2026.

“These changes are not superficial. They reflect a new, simplified approach to tax administration. The leaner and more focused law is designed to make it easy to read, understand, and implement,” Sitharaman said during the Rajya Sabha discussion.

The finance minister criticized opposition parties for skipping the debate despite agreeing to 16 hours of discussion on the bill in the Business Advisory Committee. Opposition members staged a walkout in the Rajya Sabha on Tuesday, repeating their protest from the Lok Sabha the previous day.

Sitharaman stressed the urgency of passing the bill, citing the need to upgrade the income tax department’s computer systems ahead of its implementation from April 1, 2026.

Alongside the new income tax law, the Rajya Sabha also passed the Taxation Laws (Amendment) Bill, 2025. This bill provides tax exemptions for public investment funds of the Kingdom of Saudi Arabia and its subsidiaries, allows partial withdrawals under the Unified Pension Scheme to be tax-exempt, and revises the definition of ‘income’ in block assessments during search and seizure cases.

“Normally, taxation amendments are made through the finance bill, and we could have waited for next year. But given the current economic developments, there was a need to act quickly,” Sitharaman said.

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