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New Income-tax Bill, 2025
Context:
The Income-tax Bill, 2025, introduced in the Lok Sabha, aims to overhaul India’s six-decade-old direct taxation system by eliminating outdated provisions, simplifying legal language, and creating a more concise framework.
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- The Bill seeks to enhance clarity and accessibility by using 57 tables, up from 18 in the current Income-tax Act, 1961.
- It is shorter—reducing word count from 5.12 lakh to 2.60 lakh—and eliminates around 1,200 provisos and 900 explanations.
- While ensuring continuity in the taxation structure, the Bill differs significantly from the existing Act by providing tax slabs for the new tax regime in a tabular format while excluding those for the old tax regime.
Key Features of the Bill
- Concise and Simplified Provisions: The Bill, at 622 pages, is 24% shorter than the current Act, with 23 chapters (down from 47) and 536 sections (reduced from 819) for improved readability and usability.
- Introduction of ‘Tax Year’: The new system replaces the Assessment Year (AY) with a “Tax Year,” a 12-month period starting April 1. For newly established businesses, the tax year begins from setup and ends with the financial year. This change simplifies income calculation and assessment by aligning both periods.
- Expansion of Digital Oversight: ‘Virtual digital space’ is now explicitly included in the powers of tax authorities during surveys, searches, and seizures.
- Cryptocurrency as Capital Asset: Virtual digital assets (VDAs) such as cryptocurrencies are now officially classified as capital assets, similar to land, buildings, shares, bullion, jewellery, and artworks.
- Dispute Resolution Clarity: The Dispute Resolution Panel (DRP) section now explicitly outlines the points of determination, decision-making process, and reasons for decisions.
- Removal of Outdated Capital Gains Exemptions: Section 54E, which provided exemptions for capital gains before April 1992, has been omitted.
- Income Definition and Tax Slabs: The definition of income has been expanded to account for evolving sources of earnings. Exemptions, deductions, TDS and TCS rates are clearly laid out in tabular formats. Tax slabs will be included in the Finance Act of each year.
Towards a More Efficient Tax System
- Tax experts believe the Bill’s simpler structure will help taxpayers better understand income tax provisions, reducing litigation and compliance burdens.
- By removing redundant cross-referencing and incorporating formulae and structured tables, the new Bill consolidates provisions that were previously scattered across multiple sections.
Path to Implementation
- The Bill follows the government’s commitment in the Interim Budget (July 2024) to review the Income-tax Act, 1961.
- Finance Minister Nirmala Sitharaman reiterated this in the February 2025 Budget, highlighting the goal of creating a simpler, more transparent tax system.
- Past attempts at tax reform, including the Direct Taxes Code (DTC) in 2010 and subsequent revisions in 2012 and 2014, were never enacted.
- Now, the Bill will be reviewed by a Parliamentary Committee, and after potential amendments, the government will finalize its rollout timeline.
With its concise format, clearer provisions, and emphasis on digital integration, the Income-tax Bill, 2025, marks a significant step towards modernising India’s tax framework while ensuring continuity and ease of compliance for taxpayers.
