Income-Tax (No. 2) Bill, 2025: What the New “SIMPLE” Law Means for Taxpayers

On August 11, 2025, the Lok Sabha approved the Income‑Tax (No. 2) Bill, 2025, setting in motion the most sweeping overhaul of India’s direct tax law in more than six decades.

Unlike incremental tweaks, this bill discards the old rulebook entirely, streamlining the Income-tax Act, 1961, from approximately 819 sections to 536, and reducing chapters from 47 to 23—creating a much leaner, digitally aligned framework.

What follows explains why the 1961 framework had become unwieldy, and how the new bill attempts to correct those structural problems while preparing the system for a digital economy.

Why the 1961 Act Needed a Complete Rewrite

When it was enacted in 1961, the Income-tax Act was built for a different economy. In those days, the scope of taxable transactions was narrower, compliance was largely manual, and disputes were handled through face-to-face interactions with tax officers.

Over the decades, however, the law evolved into something far more unwieldy.

• A maze built over decades: Across six decades, frequent Finance Act amendments layered definitions, exceptions, and cross‑references, making the law hard to navigate even for routine filings.
• Overgrowth of provisions: By 2025, the Act had grown to 800+ sections, supported by a thicket of rules, circulars, and notifications complexity that raised compliance costs.
• High litigation and uncertainty: Ambiguous drafting left room for competing interpretations, fuelling disputes and multi‑year case backlogs.
• Mismatch with digital reality: The framework was stretched to accommodate e‑commerce, platform income, and cross‑border flows but remained rooted in paper‑era structures.
• Structured feedback and revisions: A Select Committee review of the February 2025 draft flagged 285 refinements; 32 major changes informed the revised text.

In short, the 1961 law had become a patchwork, functional but friction‑heavy. The new bill responds with a cleaner structure and clearer drafting to lower the day‑to‑day burden on taxpayers and administrators alike.

The SIMPLE Framework: Principles Behind the Rewrite

The SIMPLE framework is a structural foundation of the new law, intended to guide interpretation, administration, and future amendments. 

• S — Streamlined: Cuts the volume from 800+ sections to 536, arranged into 23 chapters and 16 schedules. Plain‑language drafting reduces dependence on dense legalese.
• I — Integrated: Consolidates related rules to avoid duplication and scattered cross‑references; improves on‑screen form design for e‑filing.
• M — Minimized Litigation: Clarifies procedures and threshold conditions to narrow interpretational gaps that commonly led to disputes.
• P — Practical: Aligns compliance steps with realistic taxpayer capacity, especially for sole proprietors, small firms, and professionals.
• L — Learn & Adapt: Structures the code for incremental updates so emerging income streams can be accommodated without disruptive rewrites.
• E — Efficient: Extends faceless, digital‑first administration to speed up assessments and refunds while reducing in‑person interface.

Together, these six pillars aim to translate policy intent into everyday ease, shorter reading paths, fewer disputes, and technology‑enabled administration that meets today’s pace.

Major Changes Introduced

The bill is not just a cleaner rewrite of the old law. It also introduces substantive structural, procedural, and conceptual changes. These adjustments are designed to address long-standing bottlenecks while preparing the Indian tax system for future demands. 

• Reduced Structure for Easier Navigation
  The statute is compressed from over 800 sections to 536, organised into 23 chapters and 16 schedules. This consolidation reduces the need for repeated cross‑referencing and helps both taxpayers and professionals locate relevant provisions more quickly.
• Digital‑First & Faceless Administration
  The bill extends faceless assessment to more processes, including scrutiny, reassessment, and appeals. Mandatory e‑notices become the norm for most communications with the department. This reduces physical office visits, cutting opportunities for harassment and bias.
• Retention of ₹12 Lakh Basic Exemption Limit
  The existing ₹12 lakh exemption remains, providing stability for taxpayers while revised slabs marginally reduce burdens for middle‑income earners.
• Flexible Refund Mechanism
  Taxpayers can now claim TDS refunds even after missing the ITR deadline without penalty. This change mitigates the financial impact of procedural delays.
• Introduction of 'Tax Year' Concept
  Replaces the 'Assessment Year' with 'Tax Year' to simplify reporting and compliance timelines.
• Taxpayer Protections & Trust Oversight
  Mandatory notices before enforcement actions, and tighter rules for anonymous donations to religious trusts not engaged in approved social service.

These changes combine structural streamlining with procedural safeguards, aiming to make compliance easier while protecting taxpayer rights.

Benefits Across Taxpayer Segments

By tailoring changes to different taxpayer profiles, the bill aims to distribute compliance benefits widely, from individuals to complex enterprises. Let’s get a closer look at it: 

• Salaried Individuals: Stability from the unchanged exemption limit and modest relief from slab adjustments. Consolidated provisions improve clarity in computing total income.
• Small Businesses & Professionals: Simpler compliance structure reduces hours spent on filing and record‑keeping. Digital‑first processes eliminate travel to tax offices.
• High‑Net‑Worth Individuals: Predictable timelines and clearer penalty provisions reduce litigation risks, aiding in long‑term financial planning.
• Startups & Digital Enterprises: Alignment with digital economy realities reduces grey areas in taxation of cross‑border and platform income, with faster refund cycles aiding cash flow.

Yet, even with these benefits, the transition from an entrenched legal framework to a brand-new code will present challenges that taxpayers and administrators must be ready for.

Before vs After — Key Differences and Implications

This comparison illustrates not just a change in volume and terminology, but a rethinking of structure and safeguards.