Income Tax Bill 2025: Key Updates

Introduction

Nirmala Sitharaman, the finance minister, presented the Simplified Income Tax Bill 2025 to the Lok Sabha on February 13. The 64-year-old Income Tax Act will be replaced by the Bill if it is approved. The new Bill has 23 chapters instead of the original 2.6 lakh, and it has 536 sections.

To ensure ease of compliance for taxpayers, the government has also published a series of frequently asked questions that address important issues.

Purpose of the Bill

Reducing disagreements and litigation pertaining to the tax system is the Minister’s main goal. By promising taxpayers clarity and ease of compliance, the government would thereby increase tax certainty.

Following the announcement, taxpayers had the opportunity to suggest changes they would like to see in the new law through a public consultation process that was started by the Income Tax Department. This action demonstrated the government’s interest in public feedback and a more inclusive tax reform strategy.

In the budget for 2025, the finance minister promised that the new income tax bill would be introduced shortly. She added that it would reflect the same Nyaya philosophy that was central to the Bharatiya Nyaya Sanhita 2023. The legislation had revoked the application of the erstwhile Indian Penal Code 1860 and the Code of Criminal 1973 from the purview of taxation matters.

Key Changes Introduced

With more than 600 pages, 536 sections, 23 chapters, and 16 schedules, the new Income Tax Bill 2025 contains comprehensive yet understandable provisions that are intended to enhance the compliance process. It is expected to increase tax certainty and decrease litigation between taxpayers and the revenue authority because it is simpler for both tax authorities and taxpayers to read and comprehend.

The following changes have been brought in by the new act:

1. Ease of Compliance: Both taxpayers and income tax authorities will find it simpler to comply with the new income tax bill. It uses contemporary compliance mechanisms and has a more organized and efficient tax administration process.

2. Concept of Tax Year: The twelve-month period of the fiscal year that starts on April 1st is referred to as the tax year. It is believed that this will eliminate confusion by replacing the ideas of Financial Year and Assessment Year.

3. Virtual Digital Assets: A more comprehensive definition of virtual digital assets is provided by the Income Tax Bill 2025. Cryptocurrencies, non-fungible tokens, and any other digital asset that the government designates are now included in the definition.

4. Tax Appeals and Recovery: The Bill contains provisions that reform the recovery and process for appeal of taxes.

5. Reduced Content and Ease of Understanding: Compared to the Income Tax Act of 1961, the Income Tax Bill 2025 has less content and fewer words, despite having more sections and the same number of chapters. Simplifying and making the content much easier to understand is the goal.

6. Redefining Section 47 of Income Tax Act 1961: By eliminating the provision allowing for the transfer of land of an industrially sick company and stock exchange demutualization, the Income Tax Bill 2025 seeks to reinterpret section 47 of the Act.

Provisions Carried on from the Income Tax Act 1961

The majority of the rules and provisions in the Income Tax Bill 2025 have not changed. The Bill incorporates all of the suggested changes from the Budget 2025. Slab rates, capital gains, the range of income, the standards for determining residential status, and other restrictions and rates have either remained the same or have been modified in accordance with the Budget.

All provisions pertaining to tax deductions at the source, however, have been consolidated and discussed under a single section.

Advantages of the New Income Tax Regime

1. Decreased Complexity: By reducing the number of deductions and exemptions that taxpayers can claim, the new income tax bill is anticipated to simplify the tax system.

2. More Compliance: It will simplify tax regulations and eliminate legal ambiguities, making provisions of taxation more applicable to the people.

3. Liberal Tax Rates: The Bill’s tax structure is loosened, putting more money in the hands of the taxpayer. This would further enhance the economic growth in the country.

4. Reduced Legal Disputes: It is anticipated that the simplification of tax laws will greatly lessen the burden of litigation on both individuals and businesses. Moreover, with the application of various other government schemes and efforts by the Ministry of Finance and Department of Revenue, the step would also reduce the burden of taxation litigation upon the courts in India.

Conclusion

To sum up, the Income Tax Bill 2025 is a reformative measure that aims to alter the nation’s direct taxation system. Keep in mind, though, that the Bill’s provisions won’t take effect until both houses of parliament have approved it and the president has given his or her approval. It is anticipated to go into effect on April 1st, 2026.

The Act still retains the chargeability of all perquisites, but because they do not apply to all taxpayers, their valuation, terms, and exceptions have been moved to the Rules. Likewise, for improved readability, superfluous and repetitious clauses have been eliminated. The TCS-related provisions have been combined into a single section. A table detailing the type of receipts, the monetary threshold, the collector, and the TCS rate is included in Section 394 of the proposed bill. The conditions for not collecting TCS are also outlined in the aforementioned section.

The Income-tax Bill, 2025 now proposes a significant change by reclassifying offences under Section 276 CCC (failure to furnish an income tax return after a search) as non-cognizable, whereas previously, it was not specifically covered under Section 279A and thus could be considered a cognizable offence. Therefore, the government has taken all possible steps to make the Act more friendly to citizens instead of making them stuck in the loopholes of law.

King Stubb & Kasiva,
Advocates & Attorneys

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