New Income Tax Bill To Simplify Tax Code From April 2026: Know Changes And Key Highlights

Parliament has approved a new income tax Bill to replace the Income Tax Act of 1961. This updated legislation, expected to be effective from April 1, 2026, aims to simplify the tax code by removing outdated provisions and language. Finance Minister Nirmala Sitharaman stated, "This leaner and more focused law is designed to make it easy to read, understand and implement."

The revised Bill introduces several changes for corporate taxpayers. It corrects errors related to inter-corporate dividend deductions for companies using concessional tax rates. The applicability of the Alternate Minimum Tax (AMT) for Limited Liability Partnerships (LLPs) has been adjusted to align with existing provisions, removing the expanded scope that would have included LLPs not claiming specific tax benefits.

Key Features of the New Income Tax Bill

The initial draft of the Bill had a clause that restricted refunds only to those who filed returns on time. This provision has been removed in the latest version. Amit Maheshwari from AKM Global noted that this change avoids potential hardships and ambiguity for taxpayers who file late returns.

Additionally, the new Bill clarifies that there will be no TCS on Liberalised Remittance Scheme (LRS) remittances for education purposes financed by financial institutions. This provision was missing in earlier drafts but has now been included.

The concept of a "tax year" is introduced in this Bill, defined as a 12-month period starting April 1. The number of sections has been reduced from 819 in the old Act to 536 in the new one, while chapters have decreased from 47 to 23. The word count has also been halved from 5.12 lakh to 2.6 lakh words.

Changes in Taxation Laws

The government also introduced the Taxation Laws (Amendment) Bill, which amends the Finance Act, 2025. This amendment exempts income from investments made by Saudi Arabia's Public Investment Fund and its subsidiaries under clause (23FE) of the Income-tax Act.

This exemption includes income from dividends, interest, long-term capital gains or other incomes generated through investments in India. The Fund was previously notified for I-T exemption in November 2022 but faced restrictive norms related to subsidiary investments.

The amendment further extends tax benefits under the market-linked national pension system (NPS) to include the guaranteed unified pension scheme (UPS). It allows tax-free withdrawal of up to 60% of lump sum payments or accumulated UPS corpus at retirement.

Digital Searches and Data Handling

The contentious definition of "virtual digital space" remains unchanged in the new Bill. It grants income tax authorities powers during surveys, searches and seizures involving digital platforms like email servers and social media accounts.

Sitharaman mentioned that standard operating procedures will be developed for handling personal digital data seized during such operations. This aims to ensure proper management and protection of sensitive information during investigations.

In line with recommendations from a Select Committee, changes have been made regarding donations linked to non-profit organisations (NPOs). Exemptions now apply to 5% of total donations instead of just anonymous ones as per previous regulations.

The government has also addressed ambiguities related to transfer pricing provisions and clarified rules on carrying forward losses. Additionally, references concerning beneficial owners have been omitted for alignment with Section 79 of the Income-tax Act.